Rent Real EstateNAR"s October Outlook
Even with an expected acceleration in economic growth, inflation should remain low. That will maintain a low level of mortgage interest rates and keep housing near historic highs in 2004, according to the National Association of Realtors®.
David Lereah, NAR"s chief economist, said a growing economy normally places pressure on interest rates. "Many industries including the hard-hit manufacturing sector are now facing increased demand, and we can expect strong economic growth into next year," Lereah said. "With no inflation in sight, we don"t expect the Federal Reserve to move on interest rates until the third quarter of 2004."
He projects growth in the U.S. gross domestic product (GDP) to rise to an annual growth rate of 5.6 percent in the current quarter, with GDP for all 2003 increasing 2.8 percent before growing another 4.0 percent next year. Consumer price inflation should be 2.4 percent for this year and only 1.6 percent in 2004.
Lereah said the movement in mortgage interest rates in 2003 has been both unusual and unexpected. "Not only have we seen record lows for mortgage interest rates, but also we"ve seen unprecedented sharp swings up and down this year," he said. "The 30-year fixed rate is now back below 5.8 percent -- on an annual basis we have to go back to the early 60s to see mortgage interest rates where they are today."
He expects the 30-year fixed mortgage interest rate to remain below 6.5 percent for the rest of this year, and to average 6.7 percent in 2004. "That is still very affordable," he said.
Lereah forecasts a record of 5.89 million existing-home sales this year, up 5.8 percent from 5.57 million sales in 2002. New-home sales should grow by 8.2 percent to a record of 1.05 million units. Housing starts are expected to increase 3.9 percent to a total of 1.77 million units, the highest level since the impact of the baby boom generation in 1979. 2004 is seen to be the third best year for housing, with 5.48 million existing-home sales and 944,000 new-home sales.
The national median existing-home price is forecast to rise 6.8 percent in 2003 to $169,000, while the median new-home price should increase 3.3 percent to $193,800. Overall home price appreciation is expected to moderate somewhat next year, with the medians rising 4.9 percent and 5.4 percent respectively.
The unemployment rate should decline to 5.9 percent in the fourth quarter, then average 5.8 percent in 2004. Inflation-adjusted disposable personal income is projected to grow 2.9 percent in 2003 and 4.0 percent next year, while the consumer confidence index should rise gradually to 106 by the fourth quarter of 2004.