Freddie Mac's Office of the Chief Economist has issued its monthly economic report for April and, except for some mild caveats about oil prices and resulting inflation, remains bullish on the near term future of real estate.


While many figures for March are not included, the report summarized the first quarter as "jolly good for housing." February new home sales rose 9.4 percent from the revised January figure of 1.12 million units (annualized) to 1.23 units. Total home sales for 2005 are now projected at 6.93 million units, down from 7.16 million in 2004 but still well above the total for 2003.

Median prices for new and existing homes and condominiums continue to move upward, however, the rate of increase is projected to slow. Appreciation for 2005 is forecast at 6.8 percent compared to 10.7 percent in 2004 and 8.4 percent in 2003. Freddie's report is based on nationwide statistics, but we know from looking at other studies, that these rates of appreciation fluctuate wildly on a regional basis.

Housing starts which kicked off the year at a surprising pace, coming in at 2.14 million annualized, are expected to be impacted by rising rates and moderate to about 1.85 million units during the last six months of the year; a decline of 2 percent from 2004.

Freddie found that mortgage markets also had a healthy start for the year and projects conventional one to four family originations will total $2,212 billion this year. This is down substantially from 2003 when originations totaled $3,629 billion and 2004's $2,605 billion. However, this decline is back-end loaded. As rates rise, the report warned that the quarterly rate will decline from more than $600 billion in the first quarter to $440 billion in the fourth quarter. This would appear to make the projected $2,114 billion for 2006 a bit optimistic.

When it comes to rates, the report speculated that the first quarter of 2005 might be the last one where the 30-year fixed rate mortgage is reported before 6 percent for a while. (While the second quarter is young, rates have again settled below that benchmark for the initial weeks, but we won't argue with Freddie.) The official forecast is that the 30-year rate will be around 6.4 percent by the fourth quarter. Still a bargain by historic standards. Refinancing continues to account for nearly half of all loan originations. The report projects, however, that that number will drop to 32 percent by the fourth quarter. Lenders have continued to offer discounted initial rates or 'teasers' on ARMs, so these have continued to lure about one third of borrowers away from fixed rate mortgages, a pattern Freddie expects to see continue.