THE NATIONAL ASSOCIATION OF REALTORS recently amended its home sales forecast to account for persistently low mortgage interest rates. NAR's senior economist Lawrence Yun says he expects the low rates to fuel sales numbers to a fifth consecutive record in 2005.
“In January we forecasted some decline [in home sales], but we revised the forecast because of the lower-than-expected mortgage rate condition,” Yun says.
The NAR anticipates that existing home sales will rise 1.6 percent to 6.89 million this year, while new home sales will grow by 3.2 percent to 1.24 million. The predicted increases fall short of last year's impressive increases of 9.7 percent for existing home sales and 10.7 percent for new home sales. “The increases are more moderate than last year but an increase nonetheless,” Yun notes.
Yun says the continued low rates reflect a weakened inflation expectation. “The current inflation rate—which is very minimal—has been driven by high oil prices,” says Yun. “When prices start to retreat, inflation rates will also retreat. With inflation being very manageable, the interest rates can remain at historic lows.”
Looking to the future, the NAR expects the 30-year fixed-rate mortgage to increase moderately to 6.1 percent in the fourth quarter and to reach 6.5 percent by the end of 2006. Yun says the increase is likely because the rate spread between long- and short-term has narrowed. “Any further increase in short-term rates by the Federal Reserve will begin to bump up long-term interest rates,” he says.