Price gains likely to slow but not blow

A hiss, not a pop, will herald the cooling of the hot housing market, the Mortgage Bankers Assn. said Tuesday in a report analyzing the effects of economic fundamentals on the future of sales prices. From the association’s view, the landing appears soft thanks to fundamentals, such as job and income growth, that will remain solid.

Some regional or local markets where prices are out of line with fundamentals may see declines, most likely in markets where there is one large, dominant employer whose prospects are in question. That seems to rule out Southern California.

“There is still significant population and job growth in California,” said Doug Duncan, the association’s chief economist. “Barring a turnaround in the economy, it’s reasonable to expect price appreciation.”

The group anticipates sales to decline by 4% to 5% next year and price appreciation to be about 4%. Its analysis found that fixed rates for 30-year mortgages should average 6% by year’s end and move up to 6.5% in 2006.

The association’s view reflects that of some independent market watchers who have been predicting a narrowing of price gains and not a wipeout of the robust appreciation.