With the exception of a short three-month spurt in May through July, long-term mortgage rates have remained below the 6% threshold this year, contrary to expectations, because of some economic softening triggered primarily by rising energy prices. The low cost of home financing is pushing sales to another record in 2004, and NAHB Chief Economist David Seiders said that sales are likely to top last year’s record by almost 10%.
In his latest Eye on the Economy column, Seiders is advising builders that they will have to focus on a changing economic and financial market environment for housing in order to make the most of next year. Those conditions promise to be less favorable, he noted, and there already has been some increase in inventories of unsold homes this year as well as growing buyer resistance to high housing prices.
Seiders recommended a three-pronged approach to dealing with some weakening of home buyer demand he expects in 2005:
- Place strict controls on inventory accumulation
- Mine the adjustable-rate mortgage (ARM) market for all it’s worth
- Be prepared to roll out special sales techniques and incentives that have been successful in past periods.
NAHB is forecasting a roughly 5.2% decline in new single-family home sales in 2005 and a further 2.6% drop in 2006 in response to moderately higher but still affordable interest rates on long-term mortgages.
Photo by Herman Farrer
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