The headline reads "Growth Continues," but probably the big news coming out of Freddie Mac's November 2005 Economic Outlook was that, for the first time since August, that headline wasn't about yet another hurricane. Still the lingering impacts of Katrina, Rita, and Wilma were prominently featured in the report issued by Freddie's Office of the Chief Economist on Wednesday.

Last month's job report showed an increase of only 56,000 new jobs added to the economy. This was far better than the 8,000 net job losses in September, largely attributed to Katrina, but far less than the 310,000 plus that had been projected for September and October combined before the triple weather whammy. Areas outside of those directly impacted by the hurricanes shared in the reduced job growth figures, possibly because of factors related to the weather-related spike in energy costs.



Rising inflationary pressures driven by increasing fuel prices growing out of the hurricanes as well as other factors caused the Federal Reserve to once again boost the federal funds rates by one-quarter point to four percent. This had the effect of pushing up the prime rate which is the index for home equity lines to seven percent and affecting other short-term interest rates upon which ARMs are based.

Still, the report states that homeowners are continuing to pull mega-bucks out of their homes through refinancing. Freddie Mac's Cashout Refinance Report for the third quarter ended in September shows that homeowners drained $80.4 billion from the equity of their homes through financing. The total cash out for the year is expected to reach $204 billion. And homeowners were still able to improve their mortgage positions through refinancing. In spite of generally but not steadily increasing rates during the third quarter, those who refinanced were able to lower their rates for a 30-year fixed mortgage by 57 basis points; $55 per month on a $150,000 loan.

The report predicted that the Consumer Price Index would increase to 4 percent during the fourth quarter, reflecting the short-term impact of the hurricanes. The October prediction for the CPI was 3.3 percent. Still the CPI is still expected to return to the mid-two percent range by the 1st quarter of 2006.

The report increased the long standing forecast of year-end fixed rate mortgages at 6 percent by year end to 6.2 percent and projected a yearly average of 5.9 percent and 6.4 percent for 2005 and 2006 respectively. The ARM which, as reported earlier, zoomed above 5 percent last week for the first time in three years, is expected to average 5 percent for the 4th quarter and 4.5 percent for the year.

Freddie Mac expects that the demand for new housing will remain strong but that housing starts will decrease 7.3 percent in 2006 to 1.9 million units, largely as a result of rising rates. This is consistent with earlier predictions.

Home sales are still projected to set a record this year at around 7.5 million units but will drop to 7.0 million next year. This is actually a brighter picture than the Chief Economist painted in his August report when he predicted 6.80 million home sales next year.

Home prices are expected to appreciate 5.4 percent during the fourth quarter of 2005, a far cry from the range of 10.5 to 15 percent appreciation in the last three quarters and a decline from the 7.4 percent projected in August for this last quarter. Annualized appreciation for this year should be 10.2 percent and 7.3 percent in 2006. These are still healthy price increases and they apparently will continue, driven both by a strong economy and high home building costs.