Freddie Mac's monthly Economic Outlook for June was released last week.
In what has become a mantra, the corporations Office of the Chief Economist, quoting
Federal Reserve Chairman Bernanke's recent remarks, is predicting an "orderly
and moderate cooling of the housing sector."
In the face of a lot of less optimistic predictions that are being bandied
about, a few of which we have talked about here, it is hard to decide ihf Freddie
Mac's insistence on a "soft landing" is a reassuring note or whistling in the
Anyway, the current report states that the decline from the records set last
year for single-family home starts, home sales, and price appreciation was "inevitable
High levels of prices coupled with rising mortgage rates "have pinched
potential buyer's budgets and reduced the overall affordability of homeownership."
During the first quarter of this year, the report says, the homeownership rate
was down to 68.6 percent which is the lowest in around two years and anecdotal
reports point to a switch to buyers markets in many parts of the country from
the sellers' markets of past years.
Freddie Mac stated that it expects that gradually rising interest rates will
"slacken" demand further and that home sales and construction will decline
about 7 percent in 2006. This would, the report said, still result in the third
best year ever for those figures, outstripped only by 2005 and 2004. Still,
housing starts are expected to decline 16 percent on an annualized basis from
2.13 million units in the first quarter to 1.79 million in the forth quarter,
averaging 1.93 million for the year. The May report had projected 1.93 million
housing starts for 2007 but that projection quietly became 1.78 million in the
June summary tables.
Mortgage originations in general and refinancing in particular
will decline, perhaps as much as 25 percent in dollar volume during the upcoming
third quarter when compared to the same period in 2005. Refinancing, in fact,
may dip as much as 50 percent in year over year figures during that quarter;
the projection is for a decline from a 44 percent market share in the first
quarter to 28 percent this quarter. The total origination figures are a change
from projections in May when they were projected at $2.423 trillion in 2006
and $2.368 trillion in 2007 and have now been revised downward to $2.296 trillion
and $2.218 trillion respectively; an adjustment of six percent.
The report holds firm on projected mortgage rates, still estimating a rate of
6.7 percent by year's end with an average for the year of 6.5 percent
for 30-year fixed rate loans
Adjustable rate mortgages will decline in popularity through
the year, representing 22 percent of mortgages by year's end compared to 28
percent in the first quarter. Consequently lenders are expected to continue
to offer discounts on the initial period rate as an incentive to encourage ARM
A couple other figures were changed without comment from the May report. Housing
sales for 2006 and 2007 slipped from 6.97 million and 6.50 million to 6.92 million
and 6.49 million respectively which is the reason that comparing the summary
tables from month to month can be more revealing for this report than reading
The rate at which home values are appreciating is, however, looking better.
The economic and housing outlook in May projected an average annual increase
in house prices of 7.5 percent whereas the June report projects 7.8 percent
appreciation for the year.