Posted by Charles_Ca on 10/11/06 3:52pm
Msg #151788

Interesting comments "Professional Builder Magazine" says

NEW YORK -- Three housing economists agree that while home sales and home price appreciation will slow down, the market is not on the verge of collapse.

Participating in a "midyear outlook" sponsored by the National Association of Home Builders, NAHB chief economist David Seiders said what we are seeing is a "healthy correction" in housing, not a bust.

"We are looking at an economy and a housing sector that are in themidst of major transitions," he said during a conference call.

Mr. Seiders, like Fannie Mae chief economist David Berson and Freddie Mac chief economist Frank Nothaft, expects a soft landing for housing. But Mr. Seiders says the future could become more bleak, particularly if the Federal Reserve Board raises interest rates too high and precipitates a correction.

"We really are looking at an economy and a housing sector that arein the midst of major transitions," he said.

The biggest of those risk factors is the behavior of real estate investors.

Investors, speculators and vacation homeowners added ballast to the record home sale numbers posted from 2003 through 2005, and how they react to changing real estate conditions will play a big role in determining home values.

In March of this year, investors and second homebuyers accounted for about 22% of the conventional home loan market, Mr. Berson said.

Like his colleagues, Mr. Berson expects home price appreciation toslow down, though he does not expect prices to drop. Still, he acknowledges his forecast is a bit more "pessimistic" than others. He expects home prices to rise about 3% between the fourth quarter of this year and the fourth quarter of next year. Taking inflation into account, that means home prices will be largely flat.

"There is a risk that over the next year or two we could see real home price gains that are negative," Mr. Berson said.

Mr. Nothaft of Freddie Mac says another factor that will figure inhousing markets and loan performance will be the resetting of interest rates on adjustable-rate mortgage loans.

Some $1.2 trillion of mortgage and home-equity debt (including home equity lines of credit) is subject to rate adjustments in 2006, he said. As those interest rates adjust upward and monthly payments increase, that could affect consumer spending. In addition, slower home price appreciation may eventually dampen the appetite for "cash out" refinancing, which has also served to support consumer spending.

But he still expects home price growth in calendar year 2006 to average 6%-7%, about half of last year's appreciation rate.

All three economists expect the average 30-year mortgage rate to rise to about 6.8% by the end of 2006.

"We do expect gradual upward pressure on mortgage rates in the next six months that will push the refi rate down to about 30% in fourthquarter," Mr. Nothaft said.