Favorable Forecast

ALTHOUGH MORTGAGE INTEREST RATES ARE trending upward, the long-term outlook for housing is very good. We should see an average of 1.8 million housing starts (not including manufactured or HUD-code homes) annually over the next decade, according to a new 10-year forecast by the Homeownership Alliance.

This is great news for our industry and for housing consumers, and it's confirmation that housing, which has led the economic recovery since the recession of 2001, will maintain its status as a key component in the nation's financial system in the years to come.

According to the study, demographic factors, including immigration and strong household formations, will drive the ongoing demand for new homes, and the vast majority-75 percent-of new construction will be single-family. Moreover, the study found that housing should continue to account for about one-sixth of the gross domestic product.

The report also included some important and very positive conclusions about homeownership, which tends to vary significantly between ethnic and racial groups and in different parts of the country.

Due to population growth, household formations in the 1.32 to 1.63 million annually, and increased immigration, the nation's homeownership rate should exceed 70 percent by 2013, the analysis found. (A collaborative effort between top housing and mortgage experts, "America's Home Forecast: The Next Decade for Housing and Mortgage Finance," projects a similar rate.) And about one-half of the 10 million additional homeowners will be minorities.

The study also found that home price appreciation should be about 5 percent annually but could exceed 6 percent, especially if various constraints on growth continue to limit the supply of new homes. The report also reiterated that the likelihood of a housing price bubble is low, and that there is only a remote chance of a decline in home prices at the national level.

However, even though the forecast is bright, the study found that there are several important issues that need to be addressed:

* Land-use controls in some areas are driving up costs and making housing less affordable.

* Proposed changes in the way government-sponsored enterprises are regulated could make it even more difficult for them to fulfill their secondary market mission.

* Increasing demands on the federal budget may threaten programs that help provide affordable rental housing and, ultimately, may drive up interest rates.

* The nation's increasingly diverse population will require builders, other real estate professionals, and the housing finance industry to adapt to different needs and expectations.

* There is a persistent homeownership gap between minorities and non-Hispanic white households.

As the nation's economy moves beyond the 2001 recession, I am confident that our industry can meet the necessary challenges and fulfill the promise of this outstanding forecast.

The Homeownership Alliance preserves, protects, and promotes expanded homeownership opportunities for all Americans. Visit www.home ownershipalliance.org to read the full report.