Year Looks Grim For Home Sales
By KATHLEEN M. HOWLEY, Bloomberg News
U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001, as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.
Sales of new and previously owned homes probably will total 6.28 million, down 7.1 percent from last year, according to the world’s second-largest mortgage buyer. It would be the lowest since 6.20 million homes were sold in 2001. Residential lending will drop to $2.75 trillion, the lowest since 2002, the McLean, Va.-based company said in Monday’s forecast.
Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said. The average rate for a 30-year fixed rate home loan probably will be 6.7 percent this quarter, according to the forecast. That’s the highest level so far this year, and it is half a percentage point above the 6.2 percent average in the first three months of the year.
‘Several risks - the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers - point to continued weakness in the months ahead,’ Freddie Mac’s chief economist, Frank Nothaft, said in the forecast.
The number of previously owned homes on the market reached a record 4.43 million in May, according to the National Association of Realtors. Sales fell to 5.99 million at an annualized pace, the lowest in four years, the real estate trade group said in a June 25 report.
The share of all mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest in a survey that goes back to 1972, the Mortgage Bankers Association said June 14. Subprime loans entering foreclosure rose to a five-year high of 2.43 percent, up from 2 percent, and prime loans rose to a record 0.25 percent.
The average fixed rate was 6.63 percent last week, up almost half a percentage point from 6.15 percent in early May, according to data from Freddie Mac, whose larger rival is Washington-based Fannie Mae.
Home sales rose to a record 7.46 million in 2005 before dropping to 6.76 million last year, according to Freddie Mac. Demand will begin to rise next year, with about 6.39 million sales in 2008 and 6.63 million in 2009, the mortgage buyer said Monday.