ECONOMISTS PREDICT SOFT LANDING FOR HOUSING

WASHINGTON, April 28 - After soaring to record levels for three
consecutive years, the single-family housing market is gliding
toward a "soft landing" in 2006, as rising interest rates,
affordability issues and a reduced role for investors/speculators
contribute to a softening in demand, according to economists at the
National Association of Home Builders (NAHB) Construction
Forecast Conference in Washington, D.C. on April 27.

"After topping out in the third quarter of last year, it is
pretty clear that the housing sector is in a period of transition.
Sales and starts are trending lower toward more sustainable
levels," said NAHB Chief Economist David Seiders. Even so, the
slowing housing market is not likely to derail the expansion as
housing yields its position as the economy's major growth engine to
other sectors, he added.

Expressing a similar assessment, Michael Moran, chief economist
at Daiwa Securities America Inc., said: "The housing sector is
going through an adjustment, not a collapse."

Taking a bullish view on the current economic and inflation
outlook, Jim Glassman, managing director and senior policy
strategist with JP Morgan Chase & Co., said these factors will bode well
for housing.

"Real estate is pricing itself back to reality and in the
long-run it is reasonable to expect starts in the 1.8 million to 2
million range," said Glassman. "Housing won't continue to make the
same contribution to the economy that it has. But when I think
about where the economy is, I think we're in the fifth inning
with a good chance of going into extra innings. This expansion may
prove to be the longest one ever seen.

"Inflation is key to the longevity in the current economic
expansion and to the underlying health of the building business," he
said, noting that Federal Reserve Board policymakers are doing
an excellent job of keeping inflation in check.

Economists agreed that the Fed will raise its benchmark
short-term rate to 5 percent at its May 10 meeting, which would be the
16th consecutive quarter-percentage point increase since the Fed
started lifting it from 1 percent in June of 2004.

Both Seiders and Glassman believe the 5 percent mark should be
enough to ease inflationary pressures in the months ahead and to
keep the Fed from moving forward with additional rate hikes.
However, citing higher energy prices and a low unemployment rate of
4.7 percent, Moran predicted that the central bank won't stop
until it raises the federal funds rate to 5.5 percent.

Looking to the future, Seiders said that new home sales in the
first quarter of this year were down 10 percent from the fourth
quarter in 2005, and that he expects them to ease further in the
coming months before leveling off in 2007.

NAHB is forecasting that new home sales will hit 1.13 million
units in 2006, down 12 percent from last year's all-time high of
1.28 million units, and then move down slightly in 2007 to 1.09
million.

"Hopefully, most of this decline will be due to investors and
speculators stepping out of the market. What we don't want to see
is investors dumping homes on the market," said Seiders.

After posting a record 1.716 million single-family starts in
2005, NAHB is predicting that new home construction will level off
to 1.595 million units in 2006 and 1.488 million in 2007, which
would still rank high by historical standards.

Commenting on the dramatic home price increases in many markets
in recent years, Seiders said home price appreciation is
expected to fall from an average 12 percent in 2005 to about 4 percent
in 2007 and that mortgage rates should move up to 6.7 percent
later this year.

Seiders added that the multifamily market has remained "eerily
stable" since the late 1990s, and is expected to continue the
same pattern in 2006, with starts dropping slightly to 351,000
apartment units from 355,000 last year.

The rental market has solidified, and Seiders said he expects it
to regain some ground while the red-hot condo markets start to
cool. Seiders is also predicting that residential remodeling
expenditures will continue on an upward trajectory, in part because
"an immense amount of home equity will continue to support this
spending."


The Regional Outlook

Looking at housing on a more localized level, Bernard Markstein,
NAHB's Director of Forecasting, said that the forces driving
housing demand vary significantly by region. Among the forces
affecting demand are home prices, population growth, household
formation, and growth in employment opportunities. Other factors that
can greatly affect demand include immigration and migration,
energy prices, large-scale natural disasters such as Hurricane
Katrina, and an area's appeal as a second home location.

Mark Zandi, chief economist for Moody's Economy.com, said that
"builders have done a pretty good job of matching supply and
demand" and that "nationally, house prices and supply will go flat
in 2006, 2007 and 2008." This implies that there will be some
price declines in key markets, he said, but the markets are going
to "correct, not crash."

Markets where Zandi anticipates significant corrections--defined
as more than a 10 percent peak-to-trough decline-- are in the
Northeast, the Mid-Atlantic, Florida, California, parts of
Arizona, and Las Vegas.

"Any fundamental rise in interest rates will bite hard," Zandi
said. "The rise will lock out two key groups that are important
to local/regional markets: first-time home buyers and investors
(investors include second home buyers and other buyers in it for
the long term, not just those in the market with the intent to
flip and get out.)


"The Bubble" Revisited

Addressing a question that has generated endless speculation in
recent years, Thomas Lawler, a housing and mortgage market
consultant who worked for Fannie Mae for 22 years, said "Was there a
national bubble? Nationwide, no, but in some regions,
absolutely."

Lawler, who spoke on house prices and local dynamics, noted that
in some areas, "all of the signs of a bubble were present: a
surge in speculative investing; a surge in innovative financing;
easy credit and loose underwriting; home inspection waivers; and
home purchases sight unseen. You had to be 'on something' not to
see a bubble in some areas," he said.


Housing Finance

With interest rates on the rise, housing finance was a major
topic at the conference.

"Housing is the most interest rate sensitive industry in the
country," said Frank Nothaft, vice president and chief economist of
Freddie Mac. "Mortgage interest rates, home prices and family
incomes - these are the three ingredients that families think
about when deciding to buy a home.

"We expect mortgage interest rates to rise slowly through the
end of 2006, but they'll still remain well below historical
norms," Nothaft said. "The affordability problem is a function of
increases in home prices."

He pointed out that among families with prime mortgages, 87
percent of the loans are fixed-rate. "So even if the Federal Reserve
continues to raise interest rates, most American families will
be insulated because they have fixed-rate mortgages."

The major tailwinds that have driven loan originations in recent
years have swung 180 degrees, and could be major headwinds in
the coming years, said Scott Anderson, senior economist for Wells
Fargo & Company. These include rising interest rates, weakening
demographics, increasing housing inventories, and less investor
demand - especially if the stock market picks up.

"The federal reserve is doing its best to take away the punch
bowl," Anderson said. "It should be no surprise that the housing
market is going to slow down."

The NAHB Construction Forecast Conference was sponsored by the
National Council of the Housing Industry (NCHI), the Supplier 100
of NAHB, Wells Fargo Home Mortgage, Fannie Mae and Countrywide
Home Loans.