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STORIES WASHINGTON The US housing market has peaked and a slowdown appears u nderway after a five-year rally that toppled all construction and sales records and sent home prices soaring, economists said Thursday. A string of new economic data from the government and private sector show rising interest rates tugged the reins on housing activity in October a nd the first part of November.
mortgage applications slid last week as rising interest rates dampened home buyers' demand. Those reports follow a host of data over the past month indicating an inc rease in the supply of homes for sale, waning demand and some falling pr ices. Add to that growing anecdotal evidence that homes are staying on the mark et longer and buyers are bidding below sellers' asking prices, and it ce ments an impression that the long-anticipated cooling has begun. "All of that suggests this is now a buyers' market," said Nariman Behrave sh, chief economist at Global Insight.
Advertise Here Mortgage rates are the main force behind this. Until recently, long-term lending rates held onto historic lows, largely ignoring the US Federal Reserve's 12 increases in short-term borrowing costs. But starting in September, the average 30-year fixed-rate mortgage, the i ndustry benchmark, started a steady climb.
FRE) Thursday said the 30-year mortgage averaged 637 percent in the latest week -- the highest since September 2003. "The level of housing activity remains quite solid but we just might be s eeing the end of the boom," said Joel Naroff, president and chief econom ist at Naroff Economic Advisors Inc. Economists and housing market analysts have been warning of a moderation for months, saying the huge price gains in many markets were simply unsu stainable.
Alan Greenspan, too, has warned of "frothy" local market s and homebuyers' expanding use of risky "exotic" mortgages to afford ho uses in pricey areas. Low mortgage rates have fueled double-digit price growth in many metropol itan areas, especially along the US coasts. In California, for example, prices jumped 25 percent over the past year a nd nearly 110 percent over five years, according to government data. Flo rida, Nevada and Hawaii all posted price gains of more than 90 percent o ver five years. On average, overall US home prices have risen more than 13 percent over the past year and 53 percent over five years. But as mortgage prices rise, buying will slow and air will come out of so me local bubbles, economists say. Nationally, prices should flatten out over the next one to two years, acc ording to some analysts' predictions. But they could head lower in some of the hottest areas of California, Florida and the Northeast. "It's not like it's going to be a lousy market for housing next year," sa id Frank Nothaft, chief economist at Freddie Mac "It will just be norma l as opposed to these abnormal levels we've seen these last couple years ." Softening in the housing market will have a spillover effect on the broad economy and is likely to play a major role in an expected slide in cons umer spending in the months ahead. Real personal consumption expenditures -- about 70 percent of gross domes tic product -- are forecast to grow just 28 percent next year, slower t han this year's 35 percent and the smallest increase since 2002, accord ing to the Blue Chip survey of more than 50 top forecasters.
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