Home sales will be down from the high-water marks set in 2004 but are expected see the second-best year on record in 2005, according to the National Association of Realtors^®.

Existing-home sales are forecast to decline 2.0 percent to a total of 6.54 million* in 2005 from a record 6.68 million last year. New-home sales are projected at 1.11 million this year, down 6.2 percent from a record 1.18 million in 2004. Housing starts are seen at 1.92 million units this year, a decline of 1.8 percent from 1.95 million 2004, which was the highest level of housing construction since 1978.

David Lereah, NAR's chief economist, said economic conditions this year will be similar to 2004. "Even with a growing economy and improving job market, inflation should stay tame with only modest upward pressure on interest rates," he said. "The relationship between mortgage interest rates, family income and home prices will remain favorable for home buyers in most of the country."

Lereah forecasts the 30-year fixed-rate mortgage to rise modestly to 6.3 percent by the end of the year, and average 6.0 for all of 2005 compared with an average rate of 5.8 percent in 2004.

The national median existing-home price should increase 5.0 percent in 2005, with the annual price expected at $193,300. The median new-home price is forecast to rise 6.0 percent in 2005 to $232,100. By contrast, appreciation rates in 2004 were 8.3 percent for existing homes and 12.3 percent for new homes.

"This slowing in the rate of home-price appreciation will be welcome news for home buyers, yet the market remains favorable for home sellers because housing inventory levels are tight," Lereah said. "The home price gains expected this year will remain above the high end for historic norms, which are 1 to 2 percentage points higher that the overall rate of inflation."

Inflation will remain modest with the Consumer Price Index rising 2.5 percent this year. The U.S. gross domestic product is projected to grow by 3.9 percent in 2005, while the unemployment rate is forecast to decline to 5.0 percent by the third quarter. Inflation-adjusted disposable personal income is seen to grow 3.9 percent this year, while the consumer confidence index should rise to 105 by the end of the year.

More detailed information about NAR's economic outlook, as well as other analysis of real estate industry statistics, can be found in the February issue of NAR's Real Estate Outlook: Market Trends and Insights. The publication may be purchased by calling 800/874-6500.

*This is the final forecast for the current existing-home sales series. After benchmark revisions later this month, future forecasts will focus on the updated series for total existing-home sales, including single-family, townhome, condominium and cooperative home sales.

Following availability of revisions by the U.S. Census Bureau to some statistical data, and feedback from the U.S. Federal Reserve Board, NAR will make benchmark revisions to both annual existing-home sales totals and monthly seasonally adjusted annual sales rates. Although the data will change, the overall characterization of the resale market in terms of historic comparisons and relative changes will be consistent with previously reported data.

The changes will include addition of existing condominium and cooperative sales to the monthly series, with monthly revisions going back to 1999. Data prior to 1999 will not be directly comparable due to the benchmark break, but other revisions will be made back to 1989 using improved methodology. The separate quarterly track of existing condo/co-op sales will be discontinued, although the new monthly data will show that segment's market share.

NAR's benchmark approach has been reviewed by the U.S. Federal Reserve Board; the revisions will be published February 25.