NAR Sees Another Big Year Ahead
by Lew Sichelman
Some people call it a boom. Others say it is a runaway housing market that cannot be sustained. David Lereah prefers to describe the current cycle as a "good, healthy real estate expansion." And he believes it will "continue into the foreseeable future." "We're not at the end, we're at the middle," the chief economist of the National Association of Realtors said last week at the group's annual convention in Orlando. "We can take it into the next decade if the economy and interest rates cooperate." Actually, Lereah sees several other potential stumbling blocks that could short-circuit the current expansion: - An aggressive tax reform effort that wipes away the write-off for mortgage interest.
- Reforms that alter the housing mission of the government-sponsored enterprises which keep the capital flowing into the mortgage market.
- Oil prices that, if they go through the roof, slow big-ticket sales.
- An out-of-control budget deficit.
The NAR economist is worried about all these factors, he told reporters. But they're "yellow flags," not red ones, at least not yet. So he's not ready to tone down his belief that housing's joy ride can go on for quite some time. "Based on demand alone, this could go on for another five years," he said. For 2005, Lereah is looking for 6.3 million existing houses to change hands. That's down form the record 6.55 million sales this year. But that still will be higher than the previous all-time high of 6.1 million set in 2003. So who's complaining? Certainly not the NAR, whose nearly 1.1 million members handle the lion's share of those transactions. "It's okay to have a down year," Lereah told reporters somewhat tongue-in-cheek. "We can have a down year and still be in a real estate boom." Opps, there's the B-word again. Surely the economist, who spent a decade at the Mortgage Bankers Association before sliding over to the National Association of Realtors several years ago, didn't mean to slip it back into the conversation, did he? No, he said, while this is indeed "a very hot housing market," one that's been on fire since 1992, he doesn't want anyone, especially the media, to get carried away. We're not in a boom in the sense that the market for housing is out of control, Lereah carefully explained for reporters. Yes, there are some "outrageous" places where price hikes cannot be sustained, he said. But for every one of those, he added, "I can name 100 good, healthy markets which have good, solid numbers." The economist said while the record run of low mortgage rates has had a major impact on sales, other factors also have been at work. Indeed, "if it were just interest rates alone doing all this," he said, the current spurt "would have ended years ago." Lereah mentioned a number of "structural changes" that have played a part in the extended cycle, among them technical innovations in the mortgage sector that have brought cost of borrowing down by $1,300 and the savings achieved by buyers who can now search for houses on the Internet. But he said 6-plus million sales a year, year after year after year, has been fueled largely by demand. The demographic trends have been "phenomenal," he explained. "There's a huge pool of buyers." If there has been a problem at all in the housing sector, it's been in the lack of supply. There just hasn't been enough houses to go around. And as a result, buyers who can pay the freight have bid up prices Nevertheless, the NAR economist is expecting appreciation to cool somewhat next year, falling to the 5-5.5 percent range on average. That's still rather high, he said, just not as high as it has been. "We should see somewhat slower price appreciation in 2005, but as we enter the year with inventories remaining low, home prices will continue to rise a little faster than historic norms." He's also calling for mortgage rates to "hover" in the 6-7 percent range next year. "Hopefully," he said, rates "will stay below six a little longer." But even if they start bumping up against 7 percent, he thinks the market won't slow terribly because it means the economy is picking up steam, creating jobs and boosting the financial wherewithal to continue to trade houses. | 
