Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Pat Esswein, Associate Editor of Kiplinger's Personal Finance Magazine. Today, we want to talk about housing in America. Pat, there is always talk of a housing bubble and prices are going to crash, what is Kiplinger think is ahead?
Pat Esswein: This coming year we think the market is going to slow. Economists have forecast that it was going to slow for each of the past five years and prices continue to rise, but it looks like this is the year when that's going to happen.
Kevin McCormally: Okay, so what happened in 2005 and what do you expect for 2006?
Pat Esswein: Nationally, prices rose on average by about 13% in 2005. In 2006, we are looking for a return to a historical rate of appreciation of about 4-6%.
Kevin McCormally: But of course, it really depends on where you live, that location, location, location thing. How do I know how the market is going to go in my community?
Pat Esswein: If you live on one of the coast, the West or the East coast, you can pretty much expect that you will, your rate of appreciation will be somewhat higher than what's happening elsewhere in the country. If the job situation is good, if the number of jobs is growing, if your local population is increasing, that means demand is increasing, if land is scarce, if there are a lots of laws governing or restricting use of land, supply will be limited.
Kevin McCormally: Okay, final question. What do you expect is going to be happen with interest rates and how will that affect housing prices in 2006?
Pat Esswein: We are expecting that thirty year fixed rate mortgages will be going for about 6.5-7% by the end of this year.
Kevin McCormally: That's higher than it's beginning of the year.
Pat Esswein: At the beginning of this year we were at about slightly more than 6%.
Kevin McCormally: So how will that increase in mortgage rates affect the prices in 2006?
Pat Esswein: The higher the interest rate, of course, the higher the monthly payment and a lot of people are already stretching as far as they can go to afford today's very expensive homes. So by the end of the year as rates rise fewer people will be able to afford to make that stretch and afford those homes.
Kevin McCormally: Okay, thank you very much.
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