Residential real estate has been on a high over the last several years. Historically low interest rates, strong demographic trends and steady appreciation have all worked together to maintain a constant stream of homebuyers and sellers.
Homeownership is at an all time high, with the Census Bureau reporting that 73.7 million Americans — an increase of more than 1.6 million in a year — own a home. But can this trend continue?
Interest rate forecast
Most economists are looking for interest rates to rise as we move into 2005. The Federal Reserve has raised rates in 2004 and is expected to continue that trend.
The National Association of Realtors predicts that rates will rise to an average of 6.3 percent in the first quarter, compared to an average of 5.9 percent this year. It is important to remember that even as interest rates tick up slightly, we are still expected to continue to enjoy mortgage interest rates that are at historically low levels.
In addition, the mortgage industry has a variety of products available to soften the increase — adjustable rates, interest only — to name a few.
Demographics continue positive trends
The baby boomer generation continues to have a major effect on housing. The boomers, in their 50s, are enjoying healthy incomes and starting to experience the empty nest syndrome. They are thinking about retirement. All three factors are good for housing: boomers are moving up to a larger home, moving into an intown condo or loft now that their children are gone, or moving to the beach, lake or mountains as an investment or as a second home.
Their children, the echo boomers, are coming out of college and getting high-tech, high-paying jobs and are buying their first homes.
The emerging minorities — Hispanics, Asians, African-Americans — are all poised to have a major impact on housing.
Homeowner equity remains healthy
Strong rates of new home production, a high level of remodeling activity and steady price appreciation have all contributed to the value of the housing stock. In turn, this trend has pushed home equity to a record level of $8.6 trillion, 12 percent above a year ago, according to the Federal Reserve.
In addition, the Fed’s financial obligations ratio for America’s homeowners (defined as the ratio of debt payments, auto lease payments, home insurance and property taxes to disposable personal income) was only 15.76 percent in the second quarter.
What does it all mean?
All indications are that 2004 will be a record-setting year for housing. The National Association of Realtors is predicting 6.49 million existing home sales, well above the previous record of 6.10 million. New home sales will add another record 1.15 million units compared to the earlier record set in 2003 of 1.09 million.
These same experts are looking for 2005 to be slightly off compared to these unprecedented numbers. Both new and existing home sales will start to slow in early 2005. But the trends discussed above — reasonable interest rates and a variety of mortgage products, favorable demographics plus emerging minority homeownership factors and steady price appreciation — will work together to keep the decrease at about 5 percent below the records of 2004.
All in all, not a bad year ahead.
Jim Schmidt is president of Coldwell Banker Residential Brokerage, the No. 1 residential real estate firm in metro Atlanta. The company includes 27 real estate branches plus specialty divisions – The Condo Store, Builder Developer Services, Commercial and Corporate Relocation. Affiliated companies offer mortgage, title and closing services. Coldwell Banker Residential Brokerage is a member of the NRT family of companies. NRT Inc., the nation’s leading residential real estate brokerage company, is a subsidiary of Cendant Corporation (NYSE: CD). For more information, call (404) 705-1500 or visit www.ColdwellBankerAtlanta.com.
