In defiance of all expectations, U.S. home sales are likely to set another record this year, Freddie Mac chief economist Robert Van Order predicted Tuesday.
"The story about the economy and particularly housing has been about strength nobody expected," said Van Order, who spoke at Freddie Mac's midyear economic briefing in McLean.
Like other housing economists, Van Order said at the beginning of this year that it would be impossible for home sales to top last year's record of 5.86 million for new and existing homes combined. But continued job growth and relatively low interest rates have led him to change his forecast for this year to 6.01 million sales.
David Berson, the chief economist for District-based Fannie Mae, Freddie Mac's chief competitor in the mortgage market, last month adjusted his forecast to call for record sales of 5.9 million homes this year. This would be the fourth consecutive annual record.
Not only do home sales remain strong, Van Order said, but prices are rising at a rate that outpaces inflation. Home prices continue to increase at about 5 percent a year, compared with inflation of about 2.5 percent. "We're actually getting some real gains in housing prices," he said.
Freddie Mac measures home price appreciation by tracking actual sales of the same houses over the years, rather than changes in median prices, which tend to reflect shifts in the kinds of houses that are being sold.
How long will home sales continue at this robust pace? Looking ahead to 2000, Van Order said he foresees just a tiny slowdown, from 6.01 million sales to 6 million. "The economy doesn't look like it's moving to anything resembling a recession," he said.
That's despite what he views as some "fragility" in this housing picture. Historically, he said, housing production typically accounts for 4 to 5 percent of gross domestic product. In recent years, it has been running above that level.
If there were unexpected shocks to the economy, he said, they could show up quickly in the housing market. He said, "The easiest thing to do is postpone buying a house when things get tight."
Mortgage rates, he added, should remain stable through this year and into 2000, with rates for 30-year loans at about 7.6 percent.
Total Home Sales
In millions of units
* Projected figures from Freddie Mac.
SOURCES: Census Department, National Association of Realtors, Freddie Mac