“Interest rates are now lower than had been expected, and the rates may move up less than projected in the months ahead,” he said. “Thus, the risks to NAHB’s housing forecast for 2004 are mainly on the upside, and there is a possibility 2004 could even surpass the excellent performance of 2003.”
David Berson, chief economist for Fannie Mae, said that inflation is the most important economic factor for housing, and that until the Fed sees it rise from its current 0.5%-1% range closer to a more comfortable 2%, it will have no reason to tighten monetary policy.
“It may be a while to see core inflation move up,” Berson said, “and it could decline a bit more in the first half, keeping the Fed on the sidelines for a longer period.”
With mortgage interest rates unlikely to move up very much, “this could be the fourth consecutive record year” for the housing industry, he said, but in all likelihood it won’t be, partly because buyers who might have bolstered the market this year moved up their buying plans last year when they saw mortgage rates start heading higher.
Berson forecast a record $1.2 trillion in mortgage originations for home purchases this year, up from $1.1 trillion in 2003, but refinancings will tumble from $3.7 trillion last year to $0.6 trillion in 2004.
Frank Nothaft, chief economist for Freddie Mac, said this year’s modest increase in mortgage originations to buy homes would be attributable to 5%-6% price appreciation.
Nothaft said he expected mortgage originations to decline by 40% overall, with a 60% decline in refinancings, which would account for about 35% of the mortgage market.
Adjustable rate mortgages should hold on to their current share of the market, which is 25%, he said.
Noting some problems in the multifamily sector with slowing vacancy and absorption rates, Nothaft said that “the rental market has stabilized on the whole” and there should “no further deterioration.”
Although he would like to see the federal deficits on a downward path, Nothaft said that they were responsible for stimulating the economy, are “not nearly a record” as a share of the Gross Domestic Product, and “the ability of the economy to finance the deficit will improve over time as the economy strengthens.”
Like his colleagues, Nothaft expects good economic growth, declining unemployment, rising family income and low interest rates for 2004, which “translates into a very brisk housing market.”
Don’t Miss NAHB’s Spring Construction Forecast Conference
See what's on the horizon for the housing industry at the semi-annual gathering of the country's premier economists and finance experts. Get the latest forecasts on housing starts, project budgets and other economic bellwethers at the Spring Construction Forecast Conference on April 21 at the National Housing Center in Washington, D.C. Visit the Web site for more information.