Slowing Sales, Price Rises Seen for Housing

Rising mortgage rates should slow housing sales and price increases in 2006, according to bond market economists, but some markets with rapid price appreciation could experience price declines.The Bond Market Association's Economic Advisory Committee is forecasting that the fixed rate on the 30-year mortgage will hit 6.4% by September 2006 and new/existing-home sales will drop 7.3%, from a record 8.2 million in 2005 to 7.6 million, in 2006. "We are likely to see a slowing down in the increase in home prices" in the Northeast and West Coast, and "possibly a reduction in home prices in focused areas," BMA senior vice president Michael Decker told reporters. Meanwhile, a consensus forecast by 10 bank economists sees an "extremely healthy" housing market for the next 18 months, with price increases finally peaking but no actual price declines. American Bankers Association's Economic Advisory Committee also predicts that the mortgage rate will hit 6.5% by mid-2006. Looking beyond 2006, they predict an "orderly slowdown" in the housing market unless the U.S. economy goes into a recession.