WASHINGTON --The white-hot housing market in the United States is likely to cool a bit in 2005, but the commercial real-estate sector is expected to grow even stronger, the Wall Street Journal reported Monday. Real-estate, from single-family housing to real-estate investment trusts, turned in a stronger-than-expected performance in 2004, surprising analysts and market watchers who thought an improving stock market and rising interest rates would drive investors away from the sector. Though mortgage rates rose in the beginning of 2004, they fell back and remained relatively low. That kept home buying strong. The number of existing single-family homes sold in the country is expected to have risen 7.9 percent to a record 6.58 million in 2004, up from the previous record of 6.1 million in 2003, according to the National Association of Realtors. The price of a median existing single-family home is expected to have risen 7.4 percent to 182,500 in 2004, from 170,000 in 2003 -- just slightly slower than the 7.5 percent increase recorded in 2003. Raphael Bostic, an associate professor at the University of Southern California, expects the housing market to slow in 2005, because of rising interest rates as the economy strengthens and the increasing cost of building materials. "This doesn't mean the housing market will stop," he says. "But I don't think we will see the type of appreciation we had been seeing anymore." Meanwhile, the commercial real-estate sector scored gains. The stocks of REITs, companies owning real estate or mortgages that must pay out at least 90 percent of their taxable income in the form of dividends, delivered total returns (stock-price appreciation plus dividends) of 32.1 percent in 2004, down slightly from nearly 37 percent in 2003. A record net 7.55 billion dollars flowed into real-estate mutual funds in 2004, according to fund tracker AMG Data Services, of Arcata, Calif. That was up from the then-record 4.5 billion dollars in 2003. Real-estate mutual funds were the top performers among " specialty" mutual-fund categories, delivering an average total return of 31.4 percent, according to Morningstar Inc.. "The economy is improving," says Raymond Torto, a principal of real-estate research firm Torto Wheaton Research in Boston. "We think that bodes well for what has happened and what will happen in 2005 for all real-estate sectors."
January 3, 2005