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"Healthier Economy Bodes Well for Housing Industry, Analysts Say"
"WASHINGTON -- Housing analysts at the National Association of Home Builders' Construction Forecast Conference yesterday said that even if the Federal Reserve Board begins raising interest rates, the housing industry is moving into a healthier economic environment where job growth and income gains will keep residential construction and sales at healthy levels and buoy house values as well.NAHB Chief Economist David Seiders expects that the federal funds rate, which is currently 1%, will begin to rise in August and increase gradually to about 3% by the end of 2005. That would boost the prime interest rate, he said, but in terms of the availability and cost of loans the industry is heading into a very favorable financing environment.According to Seiders, mortgage interest rates, which in the past several weeks have climbed to the 6% level, probably will rise to no more than 6.25%by the end of this year and 7% by the end of 2005.Seiders also indicated that the industry doesn't need to worry about a housing price bubble precipitated by the upward direction of mortgage rates. "We're already past a contraction in payroll employment, and jobs and income are in a growth mode," he said, "so prices won't contract because the real economy is coming on strongly."According to NAHB's forecast, single-family housing starts are expected to remain at high levels, declining slightly from 1.5 million units last year to 1.488 million in 2004 and 1.422 in 2005. Bolstered by growing strength in the condominium market, this year's multi-family construction is forecast to remain at last year's 348,000-unit level, with a small drop to 320,000 units next year.While not entirely sanguine about prospects for the economy and the housing industry in the next couple of years, David Wyss, chief economist, Standard & Poor's, concurred with Seiders that growth in employment and income are heading for higher ground."As mortgage rates rise," Wyss said, "mortgages won't be as affordable, but they will still be low by historic standards." He added that the increase in rates shouldn't have much impact on first-time buyers but it could have somewhat of a dampening effect on the trade-up market from home owners who are discouraged by the added financing cost.Jim Glassman, managing director and senior economist for JP Morgan Chase, expects that the creation of new jobs, productivity-driven increases in income growth and price stability will help the industry continue to prosper despite a change in Fed policy. He added that he would be surprised to see the Fed increase interest rates this summer "because employment is a long place from where it needs to be." Source: National Association of Home Builders Web site: www.nahb.org "