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Interest in Housing to Stay

Gradually rising interest rates are expected to have a moderate cooling effect on home sales going forward, but not enough to trigger a bursting housing bubble or depress housing prices, the mortgage Bankers Association (MBA) reported in its long-term economic forecast covering 2005-2007.

“Long-term mortgage rates should increase from current levels 50 to 65 basis points by the end of 2005, and another 25 to 35 basis points during 2006, finally reaching about 7 percent for a 30-year, fixed-rate mortgage by the end of 2007,” said Doug Duncan, MBA chief economist.

Along with the modest rise in interest rates, housing sales should taper off modestly, he said. Existing-home sales are forecast to fall 7.2 percent in 2005, another 7 percent in 2006, and a further 1 percent in 2007. New home sales are forecast to fall 6.1 percent this year, 10 percent in 2006, and another 3 percent in 2007.

Home prices are expected to grow less rapidly going forward, with existing-home prices moving up 4.7 percent this year, and the price of a new home increasing 3.7 percent, the MBA forecast.

Duncan added, “The year 2005 looks to be a strong one, with GDP growing slightly above trend at 3.6 percent, down somewhat from the 4.4 percent growth rate of 2004. This will result in continued strength in employment and a strong but modestly slowing housing market.”

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