Despite a surge in new home sales reported last week, the National Association of Realtors predicts that the housing market will slow down by 2006.
"I think the market has shifted from the frenzied level of activity to a more manageable level," said Lawrence Yun, senior forecast economist at the NAR, adding that homeowners should not expect double-digit home price appreciation next year but just single digit growth in the ballpark of 4% to 6%.
The NAR reported last week that new home sales soared 13% - the largest monthly rise since April 1993 - to a new record high of 1.424 units. However, existing home sales fell modestly in October from September's reading, which was the second highest on record. October, however, still remains the seventh-highest reading ever.
Yun said that the existing home sales figure is more reliable because it comprises roughly 85% of the overall home sales market. Furthermore, he said that new home sales are significantly revised from month-to-month, and expects that next month's numbers to be revised downward.
"Existing and pending home sales, mortgage applications and higher mortgage rates are all pointing towards slightly lower sales activity," Yun said. He believes that, with home prices rising less robustly, the housing sector would not be as powerful an economic engine as it has recently been. However, the retreat would be a "soft-landing" - without major repercussions to overall economic growth, according to Yun.
Currently, the NAR expects existing home sales in 2006 to be 6.9 million, down from 2005's figure of 7.1 million. In terms of new home sales, the NAR expects home sales to drop to 1.24 million next year from 1.30 million this year.
The NAR also reported last week that new home sales in the West jumped by 47% while the northeast region increased 43%. By contrast, new home sales were up only slightly - 1.9% - in the South, and decreasing significantly in the Midwest, 9.5%.
In related commentary, RBS Greenwich Capital analyst Michelle Girard said, "The new home sales figures can be extremely volatile and are often subject to large revisions." She added that these numbers clearly show that housing demand is still robust, however, "some cooling seems likely going forward, but declarations of a collapse in the housing sector are premature."
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