Housing's Last Hurrah

NEW YORK – If you're being deafened by the sound of hammering and sawing in your neighborhood, as one or five or 20 new houses are built around you, you might think the U.S. housing boom is stronger than ever.

Well, it may be, but it's probably not going to last much longer.

The National Association of Realtors said Monday, Aug. 25, that sales of existing homes, the biggest part of the housing market, jumped to a record pace in July. That followed last week's government report that new home construction hit its strongest pace in 17 years.

Though the nation's housing market is unlikely to fall off a cliff, many economists believe it's probably at or near the peak that prices have been climbing for the past few years.

"We expect home sales will drop marginally – about 3 percent – in each of the next two years from this year's level, which will be an all-time record," said Douglas Duncan, chief economist at the Mortgage Bankers Association of America.

The reason for the MBAA's tempered outlook is the recent dramatic rise in mortgage rates. After tumbling to record lows in June, rates accelerated in July and early August and last week were a full percentage point higher than their record low in June, according to the latest data from mortgage security firm Freddie Mac.

With rates still low by historical standards, the rise in late July pushed many potential buyers into the market in one last rush; but the pace of mortgage applications has already started to drop, heralding the end of this year's mad rush.

Source: CNN/Money