Mortgage bankers group anticipates real estate remaining strong
Washington-based Mortgage Bankers Association has forecasted this year's residential mortgage production-$2.74 trillion-to be the third-largest, trailing only 2002 and 2003. The main driver of this strong, three-year economic forecast is America's "nesting trend." Projected economic growth through 2007 should average about 3.5 percent a year..
MBA chief economist and senior vice president of research and development Doug Duncan, says housing is a large reason for the positive outlook, and calls the growth forecast "solid" in the face of surging energy prices and a widening trade deficit.
Middle Tennessee home sales remain strong, and are on pace to beat the last year's record-setting numbers. As of June 30, there have been 18,131 home closings (including condominiums) in the Nashville area. At the last year mid-point, there were 17,419. In 2004 there were 33,429 closings on single-family homes and condominiums, up from 29,377 in 2003.
"We expect the string of record-high home sales to continue for the fifth consecutive year," said Duncan in a statement announcing the MBA forecast. "The labor market will remain strong, even with an expected pickup in productivity in the second half of the year. Core inflation should edge higher this year but remain near the Fed's target of 1.5 percent."
The Fed is expected to continue its modest tightening to control inflation, but not so much to affect the real estate market. By 2007, Duncan says, a fixed-rate, 30-year mortgage should reach about 6.25 percent, which would still be low in historical terms. According to Bankrate.com, as of July 26, the 30-year fixed mortgage stood at 5.24 percent.
Other findings and projections noted by MBA researchers:
- Both new- and existing-home sales will rise 2 percent in 2005 nationally to a record level. But existing-home sales will fall by about 3 percent in 2006 and another 2 percent in 2007. Likewise, new-home sales will drop 4 percent in 2006 and 3 percent in 2007.
- Price appreciation for homes will not be as intense, with median existing home prices increasing by 6.8 percent in 2005 compared with 9.3 percent in 2004. A 5.5 percent increase is expected in new home prices in 2005, compared with 13.3 percent in 2004.
- Fixed mortgage rates will continue on an upward trend, increasing from 5.5 percent currently to 5.7 percent in the fourth quarter of 2005, 6.2 percent in the fourth quarter of 2006 and 6.3 percent in 2007.
- Commercial loan activity should stay strong as rates stay low, and loans are refinanced.
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