REAL ESTATE POISED

Real estate poised for 'robust' growth Bankers association expects strong single-family market, 7% interest rates in 2005

The Mortgage Bankers Association recently forecasted strong economic growth for the U.S. economy and the housing finance market for 2004 and 2005.

"The health of the real estate market is directly dependent on jobs creation, and we anticipate significant jobs growth through 2004 and into 2005," said Douglas Duncan, MBA senior vice president and chief economist. "Rapid economic growth and higher incomes associated with productivity growth will generate job creation and bring employment levels up to 133 million by 2005. The civilian unemployment rate will gradually decline from the 6.2 percent peak in the second quarter to a healthy 5.6 percent by the end of 2005."

MBA expects real gross domestic product to grow at annual rates of 4 percent, rates that are associated with an economic expansion and above what the economy can normally be expected to sustain on a long-term basis. "Such a growth rate is likely to develop as a natural outgrowth of an expansion that builds up increased dynamism over time and of the impact of strong productivity gains on aggregate demand," explained former Federal Reserve Board Governor Lyle Gramley. "If it does not, the Federal Reserve would probably feel compelled to step down even harder on the monetary gas pedal," Gramley added.

While economic expansion is normally associated with higher interest rates, MBA is forecasting only modest increases in short-term and long-term rates. "If the financial markets are convinced that monetary policy will remain on hold, we will not see a quick run-up in rates. The 10-year Treasury bond yield will slowly move from 4.2 percent in the third quarter to 5.1 percent in the fourth quarter of 2005," Gramley said.

Mortgage rates will gradually increase from 5.9 percent in the third quarter of 2003, reaching only 7 percent in 2005. Single-family home production and purchases will therefore remain robust. The market will proceed at a robust pace, slightly slower than the record volumes reached during the period of historic low rates in 2002 and 2003. The multifamily residential and commercial sector should pick up in the second half of next year and retain its strength through 2005.

Single-family mortgage originations in 2003 will break records in the purchase and refinance markets. Refinancings will total $2.2 trillion this year and will represent 66 percent of originations. In contrast, refinancings will only account for 21 percent of total originations by 2005. Purchase originations will essentially remain flat at $1.1 trillion from 2003 to 2004, but increase to $1.2 trillion in 2005.

If the past year is an indication, Maui will benefit from the national strength in real estate, as people sell property on the mainland to invest in paradise!
(Inman News)

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