Freddie Mac's November Economic Outlook holds some good news for the economy as a whole, but the housing picture remains relatively bleak.  Third quarter growth is expected to come in at a 2.5 percent annual rate, more than three time the pace of the first half of the year.  The domestic aggregate demand (consumers and businesses) rose 3.6 percent annualized, the second biggest gain in five years, and non-residential fixed investment expanded at what Freddie Mac called "a striking 14 percent pace" during the quarter.  Declining inventories hindered growth by a full percentage point and, combined with inventory-to-sales ratios at a low level, portends an increase in production in coming months.

Consumers worried about their financial well being are a major reason why home sales remain relatively lackluster amidst the most affordable home-buyer market in decades.  Interest rates are at levels last seen more than 60 years ago and house prices are sharply down from pre-recession peaks in most markets.   Freddie Mac's House Price Index, which has declined 25 percent since the peak in mid-2006, has lost less than a percentage point in the first nine months of this year which indicates that the index is near the bottom but is probably not there yet.  A large inventory of homes in some stage of delinquency or foreclosure will continue to put downward pressure on home values especially during the always slow winter months

One thing that will especially benefit from the low interest rates is the extension and expansion of the Home Affordable Refinance Program (HARP) which is available for certain homeowners with performing mortgages connected to Freddie Mac or Fannie Mae.  About 900,000 borrowers have already taken advantage of the program and, while estimates of the expansion possibilities vary, the Federal Housing Finance Agency (FHFA) is projecting that HARP refinances may ultimately double from that level.  

Forward looking projections from Freddie Mac indicate that there will be 590,000 housing starts this year and 680,000 next year.   There will be only marginal improvement in home sales; this year is projected to finish with approximately 4.65 million sales, rising to 4.80 million next year.  Things should pick up in 2013, with 5.40 sales projected.

The FHFA Housing Price Index which is expected to be down 2.7 percent in 2011 will remain unchanged through 2012 and then rise 2.0 percent in 2013; projections from S&P/Case Shiller are -1.7 percent in 2011 but identical to FHFA for the remaining two years.

Mortgage appreciations are expected to total $1.300 trillion this year, $1.135 trillion next year, and $1.065 trillion in 2013 while mortgage rates remain in the 4.5-4.7 percent range through the end of 2012.