Housing
Despite some clouds on the horizon ...
Housing will remain strong in 2005, only a tad less vibrant than a remarkable 2004. Look for home prices to rise an average of 3%, paced by a robust peak sales season in spring. Sales volume for new and existing homes ... only about 7% shy of records hit last year. And starts of new homes will near 1.9 million, down 4% but boomy by historical measures.

Underpinning the ongoing growth:
Job and population increases. The U.S. will need about 2 million new homes every year over the next decade just to keep up with growth in the number of new households and to replace aging apartments and houses.
Rising mortgage rates will temper overall demand only slightly. The 30-year fixed-rate mortgage will end this year at about 6.75%. Rates would have to approach 8% to slow buying interest significantly.

Even so, there are some warning signals flashing in the distance, raising doubts that strong price appreciation will continue next year.
The share of speculative buying has doubled to 10% of total sales in just a few years. The large number of buyers basing their investments solely on capital appreciation leaves housing vulnerable to a reversal, notably in white-hot metro markets where speculative buying is raging.

The subprime market is expanding. More low-income borrowers or those with poor credit histories raise the odds of foreclosures as interest rates on popular variable-rate mortgage loans head higher. Subprimes total $400 billion, 14% of the $2.85-trillion mortgage market.
But risks vary widely by location. Cities in Calif. and Fla. as well as Las Vegas, where prices surged 25% or so in the past year, top the list. NYC, Boston, Washington, D.C., Chicago, and Denver follow.
A number of cities still lag the market and face little danger: New Orleans, Dallas, Salt Lake City, Memphis, Tenn., and Albuquerque, N.M.
And condos are more vulnerable to sharp price corrections than single-unit homes. They’ve attracted more buyers seeking a fast buck.

We’re not talking about bubbles bursting, even in hot markets ...
Merely some flattening out of the incline. Despite soaring prices, homes remain affordable. In 2004, it took 22% of median household income to pay the mortgage on a median-priced home. Next year, it will take 25%. It took 35% in the 1980s. Low interest rates and creative mortgages help.
Bottom line: Homes will remain reliable stores of wealth for Americans prepared to ride out periodic and inevitable price dips.

Shipping
Shippers that rely on inland waterways face years of disruptions as serious infrastructure problems outpace efforts to fix them. Spending on waterways will rise more than 10% next year to $370 million, but that won’t be nearly enough. Well over half of the 195 systems that support 12,000 waterway miles are past the normal 50-year life span.
Industries most affected: Electric power plants; refineries; chemical, cement, and steel manufacturers; and food and feed companies.

Better news for truckers and companies that depend on them:
A 2004 overhaul of restrictions on drivers’ hours will be saved. Consumer groups and unions contended that the regs weren’t strict enough, and a court ordered a rewrite. But Congress won’t let that happen.
Shippers and freight firms will applaud. A second revision of the regulations in as many years would be difficult and costly.

Financial services
National banks bidding to own realty brokerages must wait.
Maybe forever. Rules giving nationally chartered banks free rein to sell and manage property have been drawn up by the Federal Reserve and Treasury, but Congress won’t provide funding to put them into effect. At the same time, lawmakers won’t permanently bar banks from real estate. That leaves banks in limbo, trying year after year to get Congress’ OK.
Realtors say big banks would swallow small and midsize brokers, dampening competition. Banks say Realtors are just protecting their turf.

Firms seeking very small loans needn’t worry about Bush’s plan to shut down the Small Business Administration’s Microloan program, which last year guaranteed 2,425 loans, most of them under $15,000. Although Congress may try to restore some funding, very small loans can be had through other SBA programs or from a slew of private lenders.

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© 2005 The Kiplinger Washington Editors, Inc.