The national housing market has been a hot topic for some time now. Several economists have speculated that the national housing market is in a “Housing Bubble,” in which the supply of housing is artificially outpacing the demand for housing. Supporters of this notion say that this Housing Bubble will burst and that it will cause similar effects to the economy as did the Internet Bubble a few years ago.

Although it is possible for Housing Bubbles to occur, it is unlikely that they will arise at the national level, according to David Seiders, chief economist at the National Association of Home Builders (NAHB). Mr. Seiders says that a national Housing Bubble is unlikely when housing demand is primarily a product of local markets. Therefore, he suggests that Housing Bubbles only exist at the micro level: cities, groups of cities, or towns. Some of the places that might have a micro housing bubble include parts of Florida, Arizona, Massachusetts, Nevada, and California; however, even those places, which all had double-digit increases in home prices throughout 2004, are now seeing the supply of home sales to dwindling.

The forecast for the national housing market is expected to have 1.98 million new housing starts for 2005, an increase of 1.4% over the previous year. To put this in perspective, the growth rates prior to 2005 were between 5.2% and 8.4%. In 2006, the housing market will cool off even more with a 5.6% decrease in housing starts. The housing sector that will be affected most are single-family homes.

One of the primary reasons for this decrease in new housing starts is due to the forecast of interest rates. Freddie Mac, for example, has committed to increasing their 30-year fixed rate from 5.8% in 2005 to 6.3% in 2006, and they are expected to increase their prime rate from 6.2% to 7.3%, respectively. In addition to Freddie Mac, the Federal Funds Rate is expected to increase to about 4.3% in 2006. As of June 30, the Federal Funds Rates was 3.25%.

Although the national housing market has been fizzling out in 2005, states in the South and South Atlantic are still sizzling. The growth rate in housing permits for Metropolitan Statistical Areas (MSAs) in all southern states and those near the Atlantic were both at 8% between May of 2004 and May of 2005. Two of the leaders were South Carolina at 26% and Florida at 13%. Georgia, unfortunately, had a decline of 1% for the same time period.

One of the biggest reasons for the high growth in South Carolina was because of the strong housing market in the Charleston MSA, which grew 31%. In Florida, Jacksonville had similar growth of 43% between May of 2004 and May of 2005. Of the seven MSA’s that were analyzed in Georgia, the only one with positive growth was Savannah, with a growth rate of 21%.  

The overall housing forecast for the remainder of 2005 for the Coastal Empire and Low Country is expected to remain strong. However, as interest increases in 2006, it is expected that the pressure will slow down the new residential housing market. As the pressure increases on new residential construction, the renovation market will experience a slight increase. By 2007, it is expected that the Coastal Empire and Low Country housing market will slow down similar to the national average, but it will still remain slightly stronger than the national average.