Home-Cost Rise May Ease in ’06

U.S. home sales are set to defy predictions of a slight slowdown and set another record in 2005, but existing-home prices should rise at a slower rate next year, a Realtors group said Wednesday.

Existing-home sales are expected to total 7.07 million units this year, up 4.2%, and new-home sales should reach 1.29 million units, up 7.1%, according to the National Assn. of Realtors.

Construction of new single-family homes is expected to reach a record 1.7 million this year, the association said.

The group said home buyers were entering the market now in anticipation of higher mortgage rates, while hurricanes Katrina and Rita have created home demand among disaster victims.

But rising energy costs are pushing up expectations of inflation and have helped prompt the Federal Reserve to raise interest rates. The association forecasts two more rate hikes this year.

More expensive loans are “likely to have a slight braking action on the housing market,” group President Al Mansell said. “There should be a cooling in the rate of price growth.”

The association expects the median existing-home price to rise 5.2% in 2006, compared with a projected 12.5% increase this year, to $208,400.

But it predicts that the median price of new homes will rise 7.1% in 2006. That contrasts with a projected 3.9% increase this year, to $229,700.