Despite a slight rise in third-quarter home sales, analysts are predicting that a slowdown in the fourth quarter is imminent. Yet the numbers still are expected to be at or above year-ago levels, meaning that 1999 is on pace to be another strong year.
Though it is not likely that 1999 will continue the four-year trend of setting home-sales records, Walter Molony, a spokesman for the National Association of Realtors, said this year is on pace to be either the second- or third-best year on record.
"It's easing off, but still good," Molony added, indicating that at the beginning of the decade forecasters had predicted a large drop-off for the end of the 90s.
And others agree. "I don't see five [record years]," added Robert Van Order, chief economist at Freddie Mac. "Rate increases over the quarter had an effect, but not a big one. Sales were still strong."
Thirty-year mortgage rates, after hitting a two-year high of 7.94 %, have eased off slightly to 7.70% at the end of September, according to Freddie Mac.
Applications of new mortgages have reflected this projected easing, dropping from 12% to 4% annually for the third quarter of 1999, noted John Lonski, senior economist at Moody's Investor Service, compared with 27% in 1998. Also, the Miami-based building company Lennar saw a 6% decline in new orders for the same time period. A continued decline in demand for new homes is expected, analysts say.
Higher mortgage rates and the Federal Open Market Committee's recently announced tightening bias has not slowed down growth of new mortgage applications enough to cause serious concern.
"Analyses indicate that the loss has not been severe enough, due to Fed tightening, to bring an end to growth as far as housing activity or home sales go," said Lonski.
And even in the face of rising rates, other factors are driving today's real estate market. "The changes in the nontraditional homeowner and immigrants has continued to fuel the market," said Molony. He added that the aging baby boomer has increased the second home market. Forecasts using only demographic information have indicated between 100,000 to 150,000 new vacation home sales this past year.
"We're still looking at a brisk pace as far as homebuyers are concerned," added Lonski. "What we expect in average expected level of applications in the fourth quarter of 1999 exceeds the average of three years ending in 1998 by 25%."
Refis Expected To Decline
However, in refinances, Lonski is predicting a sharp decline, although the numbers look strong compared with one year ago. Because of the volatility in mortgage yields, refinancings are at an all-time low over the past three years, trailing by 57%. Van Order also indicated that "the refinancing boom will stop. It was inevitable and it's not going to change."
After a record-breaking year in 1998, when refinancings surged 232%, and 169% in the fourth quarter of that year, the potential has been depleted. Sensitivity to interest yields, consumer confidence, perceived income growth and job security contributed to the drop, Lonski added.
Van Order also has said that mortgage rates will remain under 8% during the fourth quarter, noting that mortgage rates have been hovering around 7.75% to 8% for a couple months.
In August, new single-family home sales rose 3% to 983,000 units, surpassing every month in the past 12 months except November, which saw 985,000 units. This far exceeded analysts' projections of 954,000 units.
However, the summer months saw a decline in the sales of previously owned homes, declining 3% in August to an annual rate of 5.25 million. This followed a 4% drop in July to 5.40 million. - FM