by Calculated Risk on 11/17/2005 04:41:00 PM

Reuters reports: Economists say U.S. housing market in downdraft

The U.S. housing market has peaked and a slowdown appears underway after a five-year rally that toppled all construction and sales records and sent home prices soaring, economists said on 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 and the first part of November.

The Commerce Department said on Thursday both home construction and permits for future building tumbled last month while an industry group said 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 increase in the supply of homes for sale, waning demand and some falling prices.

Add to that growing anecdotal evidence that homes are staying on the market longer and buyers are bidding below sellers' asking prices, and it cements an impression that the long-anticipated cooling has begun.

"All of that suggests this is now a buyers' market," said Nariman Behravesh, chief economist at Global Insight. "It is a big change from a year ago."

But its not all doom and gloom:

"The level of housing activity remains quite solid but we just might be seeing the end of the boom," said Joel Naroff, president and chief economist at Naroff Economic Advisors Inc.
...
"It's not like it's going to be a lousy market for housing next year," said Frank Nothaft, chief economist at Freddie Mac. "It will just be normal as opposed to these abnormal levels we've seen these last couple years."

But there is concern about the impact on the overall economy:

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 consumer spending in the months ahead.

Real personal consumption expenditures -- about 70 percent of gross domestic product -- are forecast to grow just 2.8 percent next year, slower than this year's 3.5 percent and the smallest increase since 2002, according to the Blue Chip survey of more than 50 top forecasters.