Friday, January 13, 2006
Freddie Mac predicts 'soft landing' for housing market
Another article predicting good news for the real estate market ...
Economic outlook basically positive
Friday, January 13, 2006
Inman News
Citing growth in the gross domestic product, low price inflation and low unemployment, mortgage giant Freddie Mac on Thursday predicted a soft landing for the U.S. housing market in 2006.
"Without question, America's joy ride in the housing market is coming to an end," Freddie Mac said in its January 2006 Economic Outlook statement. "However, … conditions are favorable for a soft landing, perhaps with a little turbulence on the approach."
The "turbulence" could be caused by a couple of factors, one of them being an inverted yield curve, the mortgage giant said. This is when short-term interest rates are lower than long-term rates, which became the case in the U.S. in December. Normally, long-term interest rates are higher than short-term rates because it's hard to predict what will happen far out in the future.
Higher short-term rates may lead to a bumpy descent for homeowners who used adjustable rate mortgages to buy their homes, Freddie Mac warned, because the interest rate savings on them are now smaller.
Despite these concerns, overall the government-sponsored enterprise was optimistic for the housing market in 2006.
Factors influencing the optimism included growth in the gross domestic product, which is the total value of goods and services produced by a nation. Third-quarter economic growth came in at 4.1 percent, Freddie Mac said, describing this as a "healthy number." Freddie Mac's chief economist expects "strong" economic growth for 2006.
Freddie also expects inflation to be low, at 2.5 percent, throughout 2006, another good sign. Also, the unemployment rate is expected to stay between 4.9 percent and 5 percent in 2006.
Mortgage rates, a critically important factor for the housing market, will average 6.4 percent during the year, according to Freddie Mac. This could be good news for the market.
"At 6 and 7 percent we still see upward movement or, at worst, sideways-moving price projections," Michael Sklarz, chief valuation officer for Fidelity National Financial, said in an Inman News interview in December 2005. Other experts have seconded this opinion.
Adjustable-rate mortgages will lose some of their appeal in 2006, Freddie Mac predicted, falling from the 31 percent share of applications in 2005 to around 27 percent.
Housing starts will fall as much as 9 percent, Freddie Mac warned, to 1.9 million units. Homes sales are predicted to slow to 7.1 million units, a 5 percent drop, but still the third best level ever.
Freddie Mac believes homes will continue to appreciate, with a growth rate around 7 percent.
Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula
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