Home sales won't cool until '06, analysts say

America's high-flying housing market isn't ready to settle down yet, it seems.

Buyers undaunted by rising interest rates are swarming over "for sale" properties across the country, pushing volume and prices higher than predicted so far this year, S. Lawrence Yun, senior economist for the National Association of Realtors, said Wednesday.

"We believe there's a lot of residual demand from people who made bids for homes but were rejected" because of higher offers, Yun said. "They aren't going to give up just because rates are higher. They have their minds made up. And now, the job-creating environment is creating a new pool of home buyers."

These two groups are a potent enough force to extend the nation's four-year record housing streak well into 2005, Yun said.

"Through the first half of this year, we see housing demand remaining at near-record levels," he said. "By the second half, with the mortgage rate about one percentage point higher, we may see a measurable drop in sales activity."

Yun commented after publication of the Washington group's April economic outlook, which projects for 2005:

• More sales: 6.62 million single-family home and condo resales and 1.14 million newly built houses, slightly below the 6.78 million and 1.20 million, respectively, last year.

• Higher prices: The median home price will rise 6.3%, to $196,900, for existing stock and 5.6%, to $232,800, for newly built offerings.

• Higher interest rates: In a strengthening economy, the 30-year, fixed-rate mortgage average will rise to 6.8%, significantly higher than the 6.3% predicted just two months ago.

"First quarter stronger than we thought? I agree completely. And it will continue through spring," said Frank Nothaft, chief economist for Freddie Mac of McLean, Va., the nation's second-largest mortgage company.

"Interest rates are up, but if anything, that might get people sitting on the fence to decide, 'If I'm going to buy a house, I should do it now.' "

Nothaft predicted that the 30-year mortgage rate will keep rising - but to no higher than 6.5% this year.

"It will still be a very good year for price appreciation - probably 6 percent to 7 percent. But most of that will be in the first half of the year," he said.

The slowdown expected to mark early 2005 probably won't show up until July or so, Yun and Nothaft said.

Or later. "The spring market has come out very strong, and we are expecting strength well into the year," said Diane Swonk, chief economist for Mesirow Financial, a Chicago investment services firm.

Swonk said she sees home values rising 6.5% this year - well above inflation and well below what constitutes the much-feared "price bubble."

But like her colleagues, Swonk sees the end to the heady good times in sight, probably by 2006. Next year, she predicted, deals will dwindle and home values will rise only 4%.

To sellers, that might seem puny. But to buyers, Yun noted, it could be a lifesaver.

"Home prices are up 9.3 percent over last year and, in some markets, 20 percent. That's not healthy - especially for those aspiring to become homeowners," he said.