Home sales and construction will be driven down in the second half by a slowing economy and relatively high mortgage rates, according to the Mortgage Bankers Association.
"Right now, the economy is winning," said David Lereah, chief economist at the trade group. "That has really provided a boost to the housing market, despite the huge run-up in mortgage rates.
"However, that is going to be short-lived."
Rates on 30-year mortgages have risen over 1% since earlier this year, Mr. Lereah noted. In January, 30-year mortgage rates averaged 7.04%. Last week they hit 8.24%, according to the weekly survey by Freddie Mac, the Federal Home Loan Mortgage Corp.
But rising consumer confidence - based on job and income gains - has offset the rate spike, and consumers have continued to buy homes in large numbers, Mr. Lereah said.
By the summer, though, a slowing economy will moderate the building and sale of homes, he said.
Projecting that 30-year mortgage rates will continue at current levels this year, and into next year, Mr. Lereah said lenders were expected to make $720 billion in home loans this year, and $661 billion in 1997.
Refinances will make up only 20% of the market next year, down from 27% in 1996, the MBA projects. Adjustable rate mortgages are seen gaining ground in 1997 to make up 28% of the market, up from 24% this year.
These forecasts assume that the Federal Reserve will leave short-term rates unchanged for the next 18 months, except for a 0.25% increase in July.
Along with other housing economists, Mr. Lereah said he is concerned that builders are overbuilding, without regard for the impending sales slowdown. The inventory of unsold new homes hit a high level of 379,000 homes in March, a nearly seven-month supply at current sale rates.
The boom is fueled by the easy availability of construction loans, Mr. Lereah said. But as home sales slow down in the second half of the year, builders "may get caught with their pants down," he said.
