NAR: Hurricane Katrina Impact Mixed for Economy, Housing

The National Association of Realtors (NAR), has this to say about housing, Hurricane Katrina and the economy.

The 30-year fixed-rate mortgage is forecast to rise more slowly, reaching 5.9 percent in the fourth quarter, and 6.7 percent by the end of 2006. The national median existing-home price for all housing types is projected to rise 10.8 percent in 2005 to $205,100. With a greater concentration of construction in lower cost areas, the median new-home price should increase 3.8 percent to $229,300 this year before rising at a faster clip of 6.2 percent in 2006.

There estimates of the 30yr fixed seem reasonable enough. Although I should add that it is difficult to predict. The 10.8 projected price appreciation for existing homes seems too high. Why? Because prices in many bubble markets are either stagnating or starting with very slow price declines. Plus prices in the low growth stagnating markets (OH) are nowhere near 10%. Given the 13.8 price appreciation rate in the OFHEO report from 2Q 2004 to 2Q 2005, and continued slowing of the market, the price appreciation rate for median existing homes should fall to somewhere near 8.5% for 2005. Then in 2006 we may see national price appreciation hitting negative territory.

It is estimated that most of the flooded homes will have to be rebuilt, including about 80 percent of the homes in the city of New Orleans. Along with homes that will have to be replaced along the Mississippi and Alabama coastline, a minimum of 200,000 homes have been lost. However, the level of new housing construction will be only 130,000 higher than pre-Katrina projections.

The minimum 200,000 homes having been lost is low. Real low. Sadly, many more homes have been lost.

"“Given the general tight inventory of homes available for sale across the country, rebuilding in the region of the Gulf Coast will place additional pressure on overall home prices",” Lereah says. “"As displaced residents try to get back on their feet in new locations, home sales have spiked —along with rental demand—in regions surrounding the disaster zone."

Mr. Lereah, I suppose everything is 'good' for the housing market. The 'general tight inventory' Lereah speaks of is rapidly ending. In August "inventory, however, jumped significantly with 66% more active listings in Loudoun County and 79% more in Prince William County over the same time last year."

David Lereah, NAR'’s chief economist, says shortages of building materials, made worse by the need to rebuild in areas hit by Katrina, will increase construction costs.

I can just see Lereah in his office drooling about the increased construction costs. Okay, that was harsh. But given Lereah's past statements he should go get a pom pom outfit and continue to cheerlead the bubble.