Freddie Mac Housing Market Report Focuses on Loss of Home Equity

In its monthly report, Freddie Mac focused on the downswing in national and Florida home prices. In regard to depreciation, it said:

With the growth of house price appreciation now stalled or even reversed, this has fueled fears that homeowners may face an inability to withdraw equity which could in turn undermine consumer spending. But, the data released on Tuesday shows that there is ample margin for taking out cash without running down home equity.

This means that owners should feel free to Florida refinance and use the extra cash to pay off other unsecured debts.

The Outlook also provided the following insights:

• Real GDP grew at an annualized rate of 1.3 percent in the first quarter, which was the slowest pace in four years, largely due to the slowdown in housing and to a bigger trade deficit. This is expected to grow to around three percent in the third and fourth quarters, again as a result of improvements in home construction. The slowdown in the Florida housing market, however, will still have repercussions into 2008.

• Florida mortgage rates will hold fairly steady at an average of 6.2 to 6.3 percent this year and then edge up to a 6.5 percent average over 2008.

The market share of adjustable rate mortgages which has plummeted from 28 percent in the first quarter of 2006 to 11 percent in the most recent period will remain low over the next two years as the inverted yield curve makes those loans unattractive in comparison to fixed-rate mortgages.

• Housing starts will pick up in the second half of the year, but residual inventories of new homes will continue to drag on that sector of the economy.

• Home sales will bottom out in the second quarter of this year at an annualized rate of 6.4 units. The pace is expected to reach 6.5 million units in 2008.

• National and Florida mortgage activity will reflect a 40 percent refinance pace both in the guise of cash-outs and in refinancing a sizable number of mortgages scheduled to reset this year and next. This refinance rate should, however, drop in 35 percent in the last half of 2007 and average 26 percent in 2008.