Fixed Rates Near 8 Percent, Strong Housing Market

December 1, 1996

Employment statistics will shape home sales in your area, according to John A. Tuccillo, chief economist for the NATIONAL ASSOCIATION OF REALTORS®. "Economic growth is again going to be a positive factor in 1997," he says, "and employment numbers will help tell you where it's going."

When Tuccillo looks into his crystal ball, he sees a fairly strong housing market for the first and second quarters of 1997, "but nothing as strong as we have now, because this one's absolutely off the boards."

Tuccillo also forecasts a slower economy. "We're looking for growth to slow down at the end of this year and into 1997. Essentially, we're looking for gross domestic product rates probably at or slightly below 2 percent for the first and second quarters. That's going to push up unemployment a bit--or at least slow down employment growth--and with that we'll see a slowdown in the housing market."

Home sales are expected to fall off a bit from the current projection of 4 million units. "The annual rate will decline slightly to about 3.85 million units in the first quarter and 3.83 million units in the second quarter," Tuccillo says. The highest home sales volume recorded so far in the 1990s was 3.94 million units in 1994, just under the all-time high of 3.98 million units in 1978.

What will interest rates be during the first two quarters of 1997?

National average commitment rate on the 30-year fixed-rate mortgage will fall to slightly below 8 percent as the Fed remains quiet.

The average initial rate on the one-year ARM will be about 5.5 percent. And what effect, if any, will last month's election have on the industry?

"It won't have an impact until late 1997 when we see what the tax bill does," Tuccillo says. "There'll be a major tax bill that'll probably kick in about August, but it won't have an effect until later in the year.

"The kinds of things we're looking for are in the capital gains area. Both President Clinton and Senator Dole proposed virtually eliminating capital gains on residential property. It would be nice to see some capital gains relief on investment properties. That would be the major piece we'd be looking at and, of course, the continuing battle with the mortgage interest deductibility."

Nor does Tuccillo see any areas of the country experiencing major booms or busts. "The Rocky Mountain states will remain in very good shape, and I think every place will do pretty well. I don't really see any problems."

Elyse Umlauf-Garneau is a Chicago-based freelance writer and former senior editor with REALTOR® Magazine.

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