Number of U.S. Home Sales Expected to Beat 2004 Record

Economists linked to the housing industry Wednesday boosted their forecasts for U.S. home sales in 2005, saying home-buyer demand remains strong thanks to stubbornly low mortgage rates.

The National Assn. of Realtors said sales of existing homes this year could shatter last year’s record. The trade group boosted its forecast for the year and now expects existing home sales to rise 1.6% to 6.89 million units from a 2004 record of 6.78 million. New-home sales should climb 3.2% to 1.24 million units, the group said.

Economists at mortgage finance company Freddie Mac also pushed their 2005 targets higher but said home sales would not likely break the 2004 record. According to Freddie, total home sales should hit 7.10 million units compared with 7.17 million in 2004. The earlier 2005 forecast was 7.07 million.

Both the Realtors group and Freddie Mac said low long-term mortgage rates were buoying a housing sector that most economists had previously said would slow in 2005 after four years of strength.

“Not only have mortgage interest rates declined, but an expected rise in the second half of the year will be slower than in earlier projections,” said David Lereah, chief economist at the National Assn. of Homebuilders.

Long-term rates have fallen despite eight 25-basis-point increases in short-term interest rates, baffling the Federal Reserve and its chairman, Alan Greenspan.

“The conundrum that Alan Greenspan is trying to figure out is really helping out the housing sector,” said Lawrence Yun, National Assn. of Realtors senior economist.

According to Freddie Mac, 30-year fixed mortgage rates averaged 5.62% in the week ended June 2, down from 5.65% the previous week and far from the 6.28% registered a year ago.

The Realtors group said it expected the 30-year fixed-rate mortgage to rise slowly to only 6.1% in the fourth quarter and reach 6.5% by the end of 2006. It expects the national median existing-home price for all housing types to rise 8.8% in 2005 to $201,500, while the typical new-home price should increase 5.7% to $233,600.

Freddie Mac said it expected 30-year fixed-rate mortgages to average 5.9% for 2005, down from a previous forecast of 6%.