In December's Real Estate Outlook, NAR's chief economist David Lereah says that 2003 was a record year for real estate with about 6.07 million homes sold, a significant increase over the previous record set in 2002 of 5.56 million homes sold. New home sales also topped the charts at about 1.07 million over 973,000 in 2002. Existing home prices accelerated in 2003 by a jaw-dropping 9.1 percent.

What will happen in 2004? Lereah predicts about 5.8 million homes to sell in 2004, which would be the second-highest level ever, but he also expects some softening of prices with gains of only about 4.7 percent in 2004.

NAR's predictions aren't always on the money. Mostly the organization's top-notch economists err on the side of caution. In 2002, for example, NAR forecast record homes sales which the industry soundly met, but in 2003, the year was predicted to be "near-record," not the blow-out year it eventually became.

This is because some factors simply can't be forecast even by some of the best economists in the country. A year in advance, who knew that interest rates would remain at record lows for the entire year? Or that the year-end job outlook would improve? The year 2003 surprised everyone with record housing sales, record mortgage originations (near the $4 trillion mark, says Lereah) and record new home sales.

Will there be similar surprises in 2004? Not if you see 2003 as overheated, and that good news and bad news offset each other in 2004.

Lereah first considers gross domestic product which is projected to grow by 4.8 percent in 2004, enabling job gains, which in turn spurs confidence in homebuying. An improved economy, he cautions, means that interest rates will go up, "raising the costs of homeownership." But Lereah doesn't expect them to go up more than half a point, which still keeps interest rates hovering near 30-year lows.

While existing home prices will slow, Lereah expects new home prices, which only rose 3.6 percent in 2003, to rise 5.1 percent in 2004.

He cautions that some view the housing sector as "running out of steam" because home sales and price growth have outpace household income growth for the past several years, contributing to a kind of "wealth effect" when sellers refinance or cash out. Also, as the stock market improves, investors may put more money into equities than in homes. As mortgage interest rates rise, lenders may tighten credit and require a higher downpayment which could price some first-time homebuyers out of the market. First-timers impact move-up buyers, which can leave higher priced homes in the lurch.

But, due to fiscal and monetary policies, the economy could expand faster than pundits expect. With signs of inflation, lenders will raise interest rates, which will further inhibit homebuying.

The most damaging to the economy, warns Lereah, is the growing federal budget deficit, projected to be $400 billion by the end of 2004. Historically, deficits generate high interest rates, "choking economic expansion and sending housing markets into recessions."

While he doesn't discount these factors coming to pass, Lereah doubts they will all happen in 2004. "In an environment of relatively low mortgage rates, healthy economic expansion, favorable demographic trends (i.e., strong immigration growth and a still-strong baby-boomer market), and a continued consumer preference towards real estate purchases due to higher sensitivities of a terrorist world, the demand for homes are expected to remain strong throughout the new year."

Published: January 8, 2004

Use of this article without permission is a violation of federal copyright laws.

Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.