Realtors See Record Home Prices in '05, Cooling '06

U.S. home sales are set to defy predictions of a slight slowdown and set another record in 2005, but prices should rise at a slower rate next year, a U.S. realtors' group said Wednesday.

Existing home sales are expected to total 7.07 million units this year, up 4.2 percent, and new-home sales should reach 1.29 million units, up 7.1 percent, according to the National Association of Realtors (search).

Construction of new single-family homes is expected to reach a record 1.7 million this year, the NAR said.

The group said home buyers are entering the market now in anticipation of higher mortgage rates later, while hurricanes Katrina (search) and Rita have created home demand among disaster victims.

But rising energy costs are pushing up expectations of inflation and have helped prompt the U.S. Federal Reserve (search) to raise interest rates at 11 consecutive policy meetings. The NAR forecasts two more Fed rate hikes this year and estimates the 30-year fixed-rate mortgage will reach 6.7 percent by the end of 2006.

More expensive loans are "likely to have a slight braking action on the housing market," NAR President Al Mansell said. "There should be a cooling in the rate of price growth."

The NAR estimates the median existing home price will rise 5.2 percent in 2006, compared with a 12.5 percent increase, to $208,400, projected for this year.

But it estimates the median price of new homes will rise 7.1 percent in 2006. That compares with a projected 3.9 percent increase this year, to $229,700.