Freddie Mac Sees Easy, Soft Landing for Housing Market in 2006

Paperless Florida home loans aren’t the only thing with a bright future; the entire housing market may be undergoing a “moderate and orderly cooling,” but there won’t be any major real estate bubbles bursting in the near future.

So says the monthly outlook report by Freddie Mac.

The company provided buyers/sellers with an optimistic forecast as it harkened back to the first quarter of 2005 when home values were growing at a rate of 15.4 percent; home sales had hit a record of 8.48 million (annualized); and 30-year fixed Florida home mortgage loans averaged 5.7 percent.

Now, the second quarter numbers for 2006 are more moderate - as expected. After all, the summer of 2005 signaled a turning point in housing activity from a “metaphoric heat wave” to a more reasonable pace. However, values and/or sales are NOT plummeting as some had feared.

Future of 2006 real estate

Because the economy is currently sending and receiving mixed signals that are creating uncertainty for everyone, the report projects that the rapid growth seen in the first quarter of 2006 will be replaced by slower GDP growth at a rate of 2.8 percent in the second quarter and an average of 3.5 for the year. This is a downward revision from the May report.

Inflation, however, appears to be on the rise. The Consumer Price Index (CPI) which grew at a rate of 2.2 percent for all of 2005 reached an annualized level of 3.1 percent during the first five months of 2006, largely driven by oil prices.

Freddy Mac also expects mortgage rates and Florida home loan rates to continue to bounce around “gently” as they have been doing, reaching an average of 6.8 percent for the year by its end.

Predicting Florida home loan demand

There’s more to the report, of course: Thanks to increasing house prices and higher interest rates, housing starts will fall to 1.92 million units this year. Home sales, both new and existing, will also drop 7 percent this year for a total of 6.96 million units, as buyers wait for more affordable Florida home loans. (This, however, will still be the third strongest year in history.)

Because of the expected decline in the GDP, the report foresees an even slower appreciation in home values than projected earlier. Values are now expected to rise 7 percent this year.

The substantial upward revision of some numbers from the May report are focused on Florida home loan refinancing, mortgage originations, and overall mortgage debt; they may be due to a combination of continued cash-out refinancing as the country’s individual debt load continues to grow and homeowners bail out of adjustable rate mortgages because interest rates continue to climb.

Let’s hope Freddie Mac is on the money. Other economists believe the Florida housing market will continue to cool, but evidence hasn’t supported these nay-sayers yet.