Rising Mortgage Rates Will Cool Housing Sales

The housing market recovery likely will slow down with tigher lending criteria and fallout from the bad credit home loan crisis, according to Wednesday’s report from the National Association of Realtors.

Higher loan standards, however, bode well for the long-term health of the industry, said David Lereah, NAR’s chief economist.

“We want people to be able to stay in their homes with mortgage terms they understand and can handle. Simply stated, a loan with the lowest monthly payment probably isn’t in your best interests - borrowers need to understand worst-case scenarios,” he said.

“Everyone expects this year to be slower and lower,” agreed Jay Butler of Realty Studies at Arizona State University Polytechnic. The group recently published its appreciation report for 2006, which showed gains for new homes and resales at the highest level on record.

As for 2007, Butler said those who have owned their homes for a number of years likely with see gains, but investors and others turning homes bought only a year ago may see a drop in price.

Last week, Freddie Mac reported the 30-year fixed-rate mortgage at 6.17 percent. The rate should rise slowly to 6.6 percent by the end of this year, so borrowers who need to refinance home loans should act soon, according to NAR.

Despite the impact of higher lending standards, NAR has lowered its sales forecast by only a couple percentage points, which would make 2007 the fourth best year on record. This would be the case despite the aforementioned rise in home mortgage rates.

Existing-home sales are likely to total 6.34 million nationally in 2007 and 6.52 million next year, in contrast with 6.48 million in 2006, according to NAR. New-home sales are pegged at 904,000 this year and 935,000 in 2008, below the 1.05 million last year. Housing starts are estimated at 1.47 million in 2007 and 1.55 million next year, down from 1.8 million units in 2006.

The national median existing-home price will probably slip 0.7 percent to $220,300 in 2007, following a 1.0 percent rise last year, NAR said. This will provide more affordable buying opportunities for prospective mortgage loan borrowers.

The median new-home price is projected to increase 0.4 percent to $246,200, after gaining 1.8 percent in 2006. Modest growth is expected in 2008, with existing-home prices increasing 1.6 percent and new-home prices rising 2.0 percent.