KATRINA’S LEGACY: HIGHER U.S. HOME DEMAND & CONSTRUCTION COSTS

 The National Association of Realtors is forecasting that Katrina will not only drive up the cost of construction materials and labor, but will boost demand for housing, creating an even tighter supply--which will contribute to a further increase in prices.

The group said most flood-damaged homes will have to be rebuilt, including 80 percent of homes in the city of New Orleans. In total, the storm claimed at least 200,000 homes, the Realtors' group estimated.

As building activity picks up in the hurricane-affected areas, housing inventory will remain tight nationwide, meaning demand will continue to outstrip supply in most areas, the group's chief economist, David Lereah, said.

"As displaced residents try to get back on their feet in new locations, home sales have spiked -- along with rental demand -- in regions surrounding the disaster zone," he said.

Stubbornly low long-term mortgage rates will inch up even more slowly than previously predicted, he said, due to "post-storm economic conditions to accommodate the losses of homes, jobs and businesses."

He pegged the average 30-year fixed-rate mortgage at 5.9 percent in the fourth quarter, lower than his previous forecast of 6.2 percent. Low mortgage rates have helped keep the U.S. residential real estate market booming.

Lereah raised his 2005 estimates for new and existing home sales, seeing both hitting records.

He said sales of previously owned homes should climb 3.4 percent to 7.02 million units in 2005, up from last month's estimate of 6.98 million for the year. New home sales should increase 6.7 percent to 1.28 million, up from his prior forecast of 1.26 million.

Builders should break ground on a total of 2.04 million residential units this year, the highest since 1973, as single-family housing starts grow to a record 1.69 million, the group estimated.