BARRY ROSA – A balanced market

The expected drop in home sales this year may not be as bad as many experts have predicted, even as rates on 30-year mortgages reach their highest level in four years, according to the National Association of Realtors.

Home sales are down about 10 percent year over year, according to statistics from Prudential Connecticut Realty. Most experts expected a drop between 10 percent and 15 percent, according to Barry Rosa, the firm’s new homes and lands director. But the decrease was inevitable, and merely marks the return to a balanced market, not a crash, Rosa said.

“The way we see it Â… the market essentially is going back to being a balanced one,” he noted.

The worry is that people will focus on the numbers themselves, rather than the big picture, Rosa said. Last year’s numbers were uncommonly high, so a decrease does not portend doom.

Rising mortgage rates are a factor in the drop in sales, according to many experts. Rates for last week on 30-year, fixed-rate mortgages averaged 6.53 percent, up from 6.49 percent the week before, according to Freddie Mac. Last week’s rate was the highest since the week that ended July 12, 2002, when 30-year mortgage rates were 6.54 percent, according to the Associated Press.

David Lereah, NAR’s chief economist, said he expects mortgage rates to rise more, but to remain favorable, overall.

“Economic growth and job creation are providing a favorable backdrop for the housing market, but rising interest rates have an offsetting effect,” Lereah said in a prepared statement. “Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau, meaning this will be the third-strongest year on record.” He added that the 30-year fixed-rate mortgage should rise to 6.9 percent by the end of the year.

Growth in the U.S. gross domestic product is forecast at 3.7 percent in 2006, while the unemployment rate should average 4.8 percent.

NAR predicts existing-home sales will drop 6 percent to 6.65 million this year, down from a record 7.08 million last year. New-home sales are expected to fall 10.9 percent to 1.14 million from the record 1.28 million last year. But according to NAR’s prediction, both housing sectors will mark 2006 as their third-best year, behind 2004 and 2005. NAR forecasts 2 million housing starts in 2006, which is 3.2 percent below the 2.07 million starts last year.

‘Beginning to Slow’

Analysts told the AP that mortgage rates rose as Wall Street investors worried that inflation might pick up. Government reports showing big increases in wholesale and consumer prices for March contributed to the anxiety.

“As a result of higher mortgage rates, housing market activity is beginning to slow,” said Frank Nothaft, Freddie Mac’s chief economist, to the AP.

Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing a home mortgage, climbed to 6.17 percent this week from 6.14 percent last week, according to the AP.

NAR President Thomas M. Stevens of Vienna, Va., said home prices are expected to cool, but not as much as in earlier projections.

“Although housing inventories have been improving, the balance is still a bit more favorable for sellers and annual appreciation remains in double-digit territory,” said Stevens, senior vice president of NRT Inc., in a prepared statement. “Even so, the market is in a process of normalization – appreciation will return to normal single-digit patterns, providing solid investment returns into the future.”

According to NAR, the national median existing-home price for all housing types will increase 6.4 percent this year to $221,700, while the median new-home price is expected to rise 2.3 percent to $242,700.

Prices may be rising even slower in Connecticut, where Realtors at Prudential Connecticut Realty are seeing them go up between 3.5 percent and 5.5 percent, instead of the double-digit increases that were common over the past few years.

“Prices are not going up as quickly now,” Rosa said.

The market is still healthy, however, he said, adding that homes that are priced correctly sell immediately, although overpriced homes may sit on the market for awhile. Those who look realistically at the market, Rosa noted, should have anticipated the changes.

“Really, it’s a matter of expectations,” he said.

So for some, the decrease in numbers is a letdown.

“Bottom line: It’s a good, solid market,” Rosa said. “Coming back to a balanced market always comes with these kinds of [changes].”