Economists expect the housing market to cool down in the second half of 1996.
Following the unexpected spate of building, buying, and selling in the first half, they say, the market's cyclical nature should combine with rising interest rates to put a damper on things.
"We were running at a level in the first half of the year that we can't sustain indefinitely," said Michael Carliner, an economist with the National Association of Home Builders.
New-home sales hit a 10-year high in May, existing-home sales set a record during the same month, and housing starts have jumped 20% in the past six months.
But demand for new homes is expected to decrease in the third and fourth quarters, as consumers begin to hold on to their money. In fact, according to a recent report from the Jerome Levy Economics Institute at Bard College in Annandale-on-Hudson, N.Y., the economy as a whole will slow down, leading consumers to place more money in savings accounts.
In addition, many economists expect the Federal Open Market Committee to opt for a slight rates increase during its August meeting. Lenders and builders anticipate a slowdown in housing demand if the Federal Reserve's monetary policy arm tightens rates even a quarter of a point,
"We're pretty concerned about interest rates," said Mr. Carliner. Any future rate increases will have a disproportionate effect on the homebuying market, he said. "A move from a 7% rate to an 8% always has less of an effect than a move from 8% to 9%."
So far, home builders are thankful that new home inventory rates have not been rising, Mr. Carliner added.
Although rates have been rising steadily since February, their effect on the housing market has been minimal so far. There is a lag of a few months between rising rates and a slowdown in the loan market, Mr. Carliner said.
But not every economist feels that rising interest rates will have a strong negative effect on the market. "We're still going to have strong income and job growth in the second half of 1996," said Ken Goldstein, economist for Conference Board, a New York-based association that compiles consumer-confidence figures.
"People will still spend money on big-ticket items - houses and cars - just a little less than if interest rates hadn't gone up," Mr. Goldstein said.
