Housing Sector Economists Open Window to 2006

In 2006, conditions will still be favorable for the housing sector with another busy year expected, but activity will slow some according to the nation's top housing and mortgage finance economists. There will be a modest slowdown, but that's not necessarily bad news for the industry. The economists who participated in a biannual call sponsored by the Homeownership Alliance said the slowdown only represents "a tapping of the brakes on a hot market."

The economists participating on the call represent Homeownership Alliance charter members, including the National Association of Realtors®, the National Association of Home Builders, Fannie Mae, Freddie Mac and the Independent Community Bankers of America.

"Red hot it's not...but 2006 will be another busy year for the housing sector. As mortgage rates rise, housing activity will moderate with home sales and housing starts dipping from 2005. 2006 may not be a record-setting year, but the housing sector will still be a powerful engine that continues to fuel the nation's economy," explained Frank Nothaft, chief economist, Freddie Mac.

David Lereah, the National Association of Realtors®'s chief economist, said market conditions are still favorable for housing. "The slowdown amounts to a tapping of the brakes on a hot market," said Lereah. "Home sales are coming down from the mountain peak, but they will level-out at a high plateau – a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing."

"Housing activity will remain dynamic in 2006 but will continue to cool from several red-hot, record-setting years. Slightly higher mortgage rates and a slowdown in home sales and price appreciation will mark a mature housing cycle in 2006. The continuation of solid economic fundamentals for income growth and employment will sustain a buoyant U.S. housing market in 2006," said Paul Merski, chief economist for the Independent Community Bankers of America.

David Berson, Fannie Mae's chief economist, did warn of a slowing in home price gains. "Housing activity is expected to slow in 2006, while home price gains slow sharply, in response to a pullback in investor activity and higher mortgage rates. This should be partially offset by continued strong job and income growth as well as positive demographics -- suggesting that while down next year, the pace of housing activity will remain fairly strong. There is a growing risk, however, of home price drops in those areas where the investor declines are biggest," Berson said.

"Housing market activity surged to unsustainable levels in 2005 and a ‘simmering down' process is in the cards for 2006 – despite inevitable reconstruction in the wake of the hurricanes," said David Seiders, chief economist for the National Association of Home Builders. "House prices and interest rates already are straining affordability, and cutbacks in both investor/speculator buying and ‘exotic' adjustable-rate mortgages will help restore better supply-demand balance. The housing slowdown will be concentrated in sales/production of single-family homes and condos, while rental markets will regain some ground and both manufactured homes and residential remodeling will post good growth. Overall, the housing sector will be transitioning from a powerful GDP growth engine to a slight drag on the U.S. economy."

Based in Washington, D.C., the Homeownership Alliance is a coalition of more than fifteen organizations committed to ensuring support for the American housing system. Members include Consumer Federation of America, The Council of Insurance Agents & Brokers, The Enterprise Foundation, Fannie Mae, Freddie Mac, Habitat for Humanity International, Independent Community Bankers of America, Independent Insurance Agents & Brokers of America, Local Initiatives Support Corporation, National Association of Federal Credit Unions, National Association of Hispanic Real Estate Professionals, National Association of Home Builders, National Association of Mortgage Brokers, National Association of Real Estate Brokers, National Association of Realtors®, World Floor Covering Association, National Bankers Association, National Council of La Raza, and National Urban League.