Experts: Housing market slowing

BOSTON – The nation’s booming housing market, coming off a record year, appears to be slowing, but there are signs it will make a soft landing rather than crash, Harvard University experts said Monday.

A report by Harvard’s Joint Center for Housing Studies said several factors suggested that house prices, sales and construction would ease off rather than plummet.

The experts said, among other things, that housing construction appeared to be in line with long-run demand, rather than outpacing it, and that a strengthening economy that is adding new jobs should support house prices.

Mortgage refinancing would drop off significantly if interest rates go up, but construction would hold near its current pace and house prices would simply climb more slowly rather than fall, according to the center’s State of the Nation’s Housing report, which examined housing in 2003 and made predictions for coming years.

“The housing sector once again defied expectations. At the same time, there appear to be indications that our housing boom is slowing down. The good news is there are no indications that we are in for price reversals,” said Nicolas P. Retsinas, director of the center.

But the report also warned that if job growth falters or interest rates spike higher, housing could be in for a “rougher ride.”

“Everything we’ve said about a soft landing doesn’t apply if our entire economy tanks,” said Retsinas.

The national housing boom has outlasted an international finance crisis in 1998, a recession in 2001, and job losses in 2002 and 2003 – and it’s been a major economic engine through difficult times, the report said.

The report said home sales, single-family housing starts, mortgage originations, refinancings, and home prices all reached new peaks in 2003.

While job losses were a worry in 2003, rock-bottom interest rates sparked $3.8 trillion in new mortgages as both home purchase and refinance loans broke records. Sales of existing single-family homes rose to 6.1 million units and new single-family homes to 1.1 million units, the center said.

With house prices rising in many areas of the country faster than household incomes, some are concerned that the housing “bubble” will burst, the report said. But the report said a “sharp correction is unlikely unless the economy unexpectedly contracts.”

Retsinas said it was possible that some areas could see price declines but overall “the housing sector will continue to do well.”

David Lereah, chief economist for the National Association of Realtors, said even “soft landing” was too strong a term for the coming slowdown.

“I would say we’re going to slow to a very healthy pace of activity, but we’re going to be below the record-setting pace,” he said. “We’ll see a slowing but it will be a very healthy slowing.”

Mark Zandi, chief economist at Economy.com, said the Harvard experts generally were reflecting the consensus view “that housing is at a top, that it will begin to weaken soon under the weight of higher mortgage rates,” but it wouldn’t crash.

“There will be certain markets across the country that will be hurt more than others but, broadly speaking, the housing market should hold together pretty well,” he said.