Stronger than expected home sales and higher median prices have caused the National Association of Realtors (NAR) to forecast new-home sales will rise 8.9% to 1.18 million in 2004 and 1.13 million are forecast for 2005, just shy of the record expected this year. Housing starts are seen at 1.95 million this year, the highest level since 1978; housing construction is projected at 1.87 million units in 2005. NAR expects existing-home sales will jump 7.9% to 6.58 million in 2004, well above last year's record. For 2005, NAR projects 6.38 million sales, which would be the second highest level on record. The national median existing-home price is projected to rise 7.9% to $182,500 for the year. The median new-home price should increase 8.9% to $214,600.

Some of the backup in housing demand is being met. "We're setting our fourth consecutive record year for existing-home sales, and even with strong fundamentals such as household growth, low interest rates and an improving economy, we simply can't set records every year," says David Lereah, NAR's chief economist. "Given the sharp rise over last year's record, we can expect a bit of a breather in 2005, which will remain a historically strong year." Lereah predicts the 30-year fixed-rate mortgage should rise slowly but average only 6.4% next year.