Another day, another gloomy housing forecast? The Freddie Mac prediction, that housing sales in the US will total 6.28 million, would be the lowest level since 2001. Not surprisingly, the agency attributed the expected decline to higher interest rates and more stringent lending standards.
The report also said Freddie Mac’s home price index, for houses bought with conventional mortgages, would increase 1% this year, which contrasts with the National Association of Realtors forecast that average prices (across all homes) will fall 1.3%. Even though the two forecasts are about different housing populations, it’s unusual for the industry group to be more pessimistic than other sources.
From the Bloomberg story:
U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.
Sales of new and previously owned homes probably will total 6.28 million, down 7.1 percent from last year, according to the world’s second-largest mortgage buyer. It would be the lowest since 6.20 million homes were sold in 2001. Residential lending will drop to $2.75 trillion, the lowest since 2002, the McLean, Virginia-based company said in today’s forecast.
Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said. The average U.S. rate for a 30-year fixed rate home loan probably will be 6.7 percent this quarter, according to the forecast. That’s the highest level so far this year, and it’s half a percentage point above the 6.2 percent average in the first three months of the year.
“Several risks — the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers — point to continued weakness in the months ahead,” Freddie Mac Chief Economist Frank Nothaft said in the forecast.
The number of previously owned homes on the market reached a record 4.43 million in May, according to the National Association of Realtors. Sales fell to 5.99 million at an annualized pace, the lowest in four years, and the median price fell 2.1 percent from a year earlier, the 10th consecutive monthly decline, the real estate trade group said in a June 25 report.
As mortgage rates climb and financing becomes more expensive, buyers won’t be able to bid as much for a property, Nothaft said.
“Higher mortgage rates will likely impact home prices as well as sales and construction activity,” Nothaft said in the report.
Freddie Mac’s home price index, measuring property bought with so-called conventional mortgages, or loans under $417,000, probably will gain 1 percent this year, Nothaft said. A month ago he forecast a gain of 1.5 percent.
The National Association of Realtors said June 6 that it expects the U.S. median price to drop 1.3 percent in 2007, an estimate that includes all loan sizes. The last time the national median price fell was during the Great Depression in the 1930s, according to Lawrence Yun, an economist for the real estate group.
The share of all mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest in a survey that goes back to 1972, the Mortgage Bankers Association said June 14. Subprime loans entering foreclosure rose to a five-year high of 2.43 percent, up from 2 percent, and prime loans rose to a record 0.25 percent.
The average U.S. fixed rate mortgage was 6.63 percent last week, up almost half a percentage point from 6.15 percent in early May, according to data from Freddie Mac, whose larger rival is Washington-based Fannie Mae.
U.S. home sales rose to a record 7.46 million in 2005 before dropping to 6.76 million last year, according to Freddie Mac. Demand will begin to rise next year, with about 6.39 million sales in 2008 and 6.63 million in 2009, the mortgage buyer said today.