Concerned about the recent uptick in interest rates? Not to worry, housing economists say.
Although forecasters at the National Association of Realtors annual convention held here recently believe the economy will remain sluggish, their outlook for housing continues to be robust on the assumption that interest rates will stay low.
John A. Tuccillo, NAR’s chief economist, projected that interest rates will drop over the next six to eight months to about 6.5 to 6.75 percent for 30-year, fixed-rate mortgages.
“The (recent) rise in interest rates isn’t anything to worry about,” agreed Donald Straszheim, chief economist for Merrill Lynch in New York. “If you liked ’92 and ’93, you’ll love ’94 and ’95,” he said.
Interest rates edged up recently-to just over 7 percent for 30-year, fixed-rate mortgages-because of better-than-anticipated economic growth of 2.8 percent in the third quarter, said economists. Strong growth numbers can push interest rates up if investors believe the growth will fuel inflation.
Mark Obrinsky, senior economist at Fannie Mae in Washington, D.C., expects economic growth to hit 3.5 in the fourth quarter of 1993. But that may be the peak, with economists expecting the Gross Domestic Product-a broad measure of the nation’s economic activity-to grow between 2.5 and 3 percent for ’94.
“We’re in the slowest and most sluggish recovery in the post-war era,” said Straszheim.
Yet the slow recovery perpetuates a more stable housing market, say many real estate experts.
Richard Loughlin, president of Century 21 Real Estate Corp., says consumer attitude toward home buying is on an upswing. According to Century 21 studies, 50 percent of consumers believe this is a good time to sell and 85 percent of consumers believe it’s a good time to buy a home.
“This is the highest we’ve tracked for 25 years,” said Loughlin.
Loughlin partially attributes those attitudes to the lower interest rates, which he thinks will continue to hover from 6.5 to 7.5 for 30-year, fixed-rate loans until 1996 or 1997.
Low mortgage rates translate into greater affordability, said Straszheim, which should be a boon to younger people who have been shut out of homeownership.
Indeed, the National Association of Realtor’s housing affordability index, which measures affordability factors for home buyers, increased for the fifth consecutive quarter and is at its highest level since the fourth quarter of 1973.
Tuccillo looks for existing house sales this year to total 3.7 million with a slight uptick to 3.8 million for 1994. That would make the best back-to-back years for housing since 1979, he said.
New home sales should approach “pre-recessionary” figures, Tuccillo said, with 634,000 new home sales in 1993 and 650,000 for 1994. He expects housing starts to total 1.24 million in 1993 and total about 1.3 million for 1994.
If there is a potential surprise in ’94, it might be a greater upswing in home building in the third quarter, said Tuccillo.
Regionally speaking, the Midwest, West and South will show greater than normal housing activity while the Northeast continues to struggle and Southern California remains a trouble spot, said Tuccillo.
Tuccillo predicts more activity for fixed-rate mortgages and less interest in adjustable rates, noting the Federal Reserve will probably raise short-term rates “if for no other reason than to assure people they are still alive.”
Median home prices will settle down, Tuccillo said, explaining that a house is now being viewed as a home rather than a “piggy bank.”
For 1994, Tuccillo expects new and existing home prices to increase about 3.8 percent, a little less than the 4 to 5 percent annual appreciation that has been normal in recent years.
Obrinsky, however, expects existing home prices to increase about 3 percent with new homes up 5 percent in 1994.
