Freddie Mac Releases Housing Market Outlook

According to the January 2007 Economic Outlook - published last week by the Office of the Chief Economist at Freddie Mac and headlined The Remodeled Housing Market - the following are key forecasts of the 2007 housing market:

- Low inflation is likely to keep long term Florida mortgage rates below 6.5 percent this year and the yield curve (the difference between short and long-term rates) is likely to remain inverted throughout the coming year.

- 1-year Treasury ARMs are forecast to average 5.5 percent each quarter of 2007.

- The market share of adjustable-rate Florida home loans will probably drop to 14 percent, the lowest level since 2001. This will happen because of the inverted yield curve, but also due to regulators worried about rate shock, and therefore being likely to pressure lenders to be more conservative in their lending practices.

- Housing starts will bottom out in the first half of 2007 and then begin to rise slowly over the remainder of the year. The final total will probably be about 11 percent below the 2006 pace.

- Housing sales will follow a similar pattern but low mortgage rates will help to pull buyers back into the market. Single family home sales will be about 6 percent lower in 2007 than in 2006.

- It is hard to measure falling house prices as these become confounded with sales because sellers refuse to lower prices and thus incentives such as seller-paid closing costs and other inducements do not register in the statistics as price declines. Freddie Mac expects prices nationwide to be up 2.9 percent this year but also expects the numbers to vary widely based on location and to also be quite volatile.

- National and Florida mortgage activity will decline about 6 percent from 2006 figures but the pending readjustment of interest rates will drive a lot of homeowners to refinance to avoid an increased payment.

- Mortgage debt will grow at about 7 percent which would be the slowest rate since 1997.