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House
prices set to rise slowly
Jul 14, 2004
House prices are likely to grow at the slowest pace in more
than three decades as interest rates climb and land prices take
a tumble over the next three years, according to researchers
at the Federal Reserve.
The study asserts that if U.S. disposable income and short-term
interest rates climb as much as Wall Street expects them to,
existing-house prices would increase a cumulative 2.6 percent
over the next three years. That would mark the lowest rate since
the government began keeping records in 1970. The number implies
high odds that house prices will decline in inflation-adjusted
terms.
Prices of existing homes rose by more than 20 percent cumulatively
over the last three years, according to the National Association
of Realtors, which has been predicting only a modest slowdown
for the next few years.
"Of primary concern to
some analysts is whether the recent run-up in aggregate home
prices will be somewhat reversed, much like the 1985-90 and
1990-1995 experience," when inflation-adjusted house prices
declined in several major metropolitan areas, write the study's
authors, Morris Davis, a Fed economist, and Jonathan Heathcote,
an assistant professor of economics at Georgetown University.
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