Tuesday, July 10, 2007

Freddie Mac: home sales will keep falling

Freddie Mac, the second-largest mortgage buyer, paints a bleak picture of the current situation in the housing sector, and makes a rather gloomy forecast for the months ahead.

Just when economists hoped for a rebound in home-buying activity, mortgage rates jumped from 6.15-6.25% to 6.50% and higher, cutting into affordability. According to the mortgage giant, home sales in 2007 will probably drop to their lowest level since 2001, totaling 6.28 million, 7.1% lower than last year. In 2001, home sales totaled 6.20 million. The interest rate on a 30-year fixed mortgage will probably be 6.7% this quarter, up from 6.2% in Q1. Inventory reached a record of 4.43 million in May, while sales dropped to a 5.99 million annualized rate, the lowest figure in four years. According to analysts, the bottom in home sales will probably be reached in 2007, but price declines will continue into 2008.

Freddie Mac is also revising downwards its forecast for gains in the home price index. Last month’s forecast of 1.5% is being revised to an increase of 1% for this year. Housing starts are expected to decline 18% in 2007, to a total of 1.48 million. The percentage of mortgages entering foreclosure is at an all-time high of 0.58%, subprime foreclosures are at 2.43%, the highest level in 5 years, and foreclosures on prime loans reached a record 0.25%. So, don’t expect good news from this part of the economy till the end of the year.

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