Existing single-family home sales in the United States fell modestly in November, but overall 2003 will be the best year ever for home sales. The lowest mortgage interest rates in 40 years explain the boom in home sales.
The National Association of Realtors says that for all of 2003, more than six million homes have been sold. This record level of activity is attributable to near- record low interest rates. Walter Molony of the realtors association says mortgage interest rates this year averaged 5.8 percent on the typical 30 year loan, a level not seen since 1971. "These are generational lows [in interest rates]," he said. "And they have really been helping people coming into the prime ages for buying a first home, making it easier to make the transition from renting to owning."
Most Americans purchase their homes with an initial payment of about ten percent of the purchase price and then pay off the loan over 30 years. The average price of an existing single-family home [nationwide] is $201,000.
Mr. Molony of the realtors association expects interest rates will rise only modestly over the next year, not enough to significantly affect home sales.
"We're projecting that mortgage interest rates are going to rise modestly over the next year, about a half of a percentage point, from five point eight percent for this year to six point four percent next year ," he explained. "Now that will put a little bit of braking on the market but not a lot. Sales will be coming down from four to five percent, which would make 2004 the second best year on record."
But other economists believe interest rates will rise at a faster pace, because the economy may be growing so fast that inflation is becoming a danger. John Silvia, chief economist at Wachovia bank in Charlotte, North Carolina, says rates could rise by at least a full percentage point over the next year.
"It probably will have a modest negative effect on the housing market," he said. "But since the demographics of the housing market and income growth are still very solid, that interest rate effect is going to be muted compared to what it might be in other situations."
Interest rates have been falling or steady at low levels for three consecutive years. Experts say rates would have to rise significantly, far more than is currently projected, to choke off the current boom in the U.S. housing market.