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HOUSING POISED FOR ANOTHER BOOM YEAR, ACCORDING TO FREDDIE MAC ECONOMIC FORECAST

Latest Indicators Point Toward A Strengthening Economy

McLean, VA (April 10, 2002) -- Freddie Mac announced today that it has revised upward its projection of economic growth for 2002 based on the strength in recent economic indicators. Real Gross Domestic Product (GDP) is forecast to expand 3.0 percent in the first quarter of 2002 and 3.4 percent for the year, up from the 2.9 percent predicted in January.

Inflation is also expected to remain low, with price increases of 2.2 percent this year and a longer-term trend of 2.5 percent annually.

"A modest rate of inflation, coupled with a healthy economy, will enable long-term mortgage rates to remain at current low levels," said Frank Nothaft, Freddie Mac chief economist. "Thirty-year fixed-rate mortgages (FRMs) have hovered within a narrow 0.5 percent band centered at 7 percent since mid-November, 2001, and this pattern should continue through the spring. As a matter of fact, the 30-year FRM is expected to average 7.1 percent in 2002."

Housing starts surprised the industry by coming in at a vibrant 1.77 million seasonally adjusted annual rate (SAAR) in February, further indication that 2002 will be another banner year for the housing industry. However, March starts should come in lower, as such a high level of activity cannot be sustained for a long period. Annually, Freddie Mac economists predict house starts will reach about 1.63 million, 2 percent more than in 2001.

"Likewise, a sales pace of close to 7 million for single-family houses in January and February should slip toward a 6 million (SAAR) pace, bringing the 2002 total close to last year's record level of 6.2 million sales," added Nothaft.

Additionally, slowing house price appreciation will help keep housing affordable. For this year, house prices are expected to grow by only about 3 percent, compared to 7.1 percent last year.

"Single-family mortgage originations will be about 20 percent lower in 2002 because of an anticipated drop in refinancing," noted Nothaft. "We see originations coming in around $1.5 trillion by year end, which will make this another stellar year for housing finance.

"Home-purchase originations will be up slightly in 2002, but refinancing will be down considerably. Refinancing will slow because mortgage rates are likely to inch up a bit higher in the second half of the year and because most homeowners with a financial incentive to refinance will have done so by midyear. And as long-term rates creep upward, more homeowners will find the Adjustable-Rate Mortgage (ARM) attractive, bringing the ARM share of originations this year to about 18 percent, from about 12 percent in 2001."


2001
2002
Average for year

Revised 1/16/2002
Indicator Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1999 2000 2001 2002 2003
Real GDP (Growth) a. 1.3 0.3 -1.3 1.7 3.0 3.0 3.5 4.0 4.4 2.8 0.5 3.4 3.0
Consumer Prices (Growth) a. 4.0 3.7 0.7 -2.0 2.3 2.0 2.0 2.5 2.7 3.4 1.6 2.2 2.5
Unemployment Rate (Avg.) 4.2 4.5 4.8 5.6 5.6 5.6 5.5 5.4 4.2 4.0 4.8 5.5 5.0
30-Year Fixed Mtg. Rate (Avg.) 7.0 7.1 7.0 6.8 7.0 7.1 7.1 7.1 7.4 8.1 7.0 7.1 7.2
1-Year Const. Mat. Treas. Rate (Avg.) 4.6 3.8 3.3 2.2 2.3 2.6 2.7 2.8 5.1 6.1 3.5 2.6 3.1
Note: Quarterly and annual forecasts are shown in shaded areas.
a. Quarterly percent changes at annualized rates. Yearly data reflect Q4/Q4.
  Housing and Mortgage Markets

 

  2001 2002   Annual Totals
Indicator Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1999 2000 2001 2002 2003
Housing Starts a. 1.63 1.62 1.60 1.57 1.70 1.60 1.60 1.60 1.64 1.57 1.60 1.63 1.60
Total Home Sales a. 6.28 6.22 6.13 6.16 6.70 6.00 6.00 6.20 6.09 6.03 6.20 6.22 6.27
House Prices b. 10.88 8.67 7.66 1.33 2.00 3.00 3.00 4.00 5.94 9.04 7.08 3.00 4.50
1-4 Family Mortgage
Originations c.
    Conventional $319 $428 $421 $522 $417 $313 $306 $264 $1,134 $932 $1,689 $1,301 $1,095
  FHA/VA $32 $41 $45 $48 $52 $47 $46 $40 $172 $115 $167 $184 $164
  Total $351 $469 $466 $570 $469 $360 $352 $305 $1,306 $1,047 $1,856 $1,485 $1,259
ARM Share (%) d. 11 11 15 12 16 17 19 20 22 25 12 18 21
Refinancing Share (%) 58 50 52 66 45 33 30 27 33 22 54 34 25
Residential Mortgage Debt Growth (%) 7.4 12.2 11.4 10.2 4.9 6.7 7.4 7.8 10.2 8.9 10.3 6.7 7.6
Note: Quarterly and annual forecasts are shown in shaded areas. Totals may not add due to rounding.
a. Millions of units. Quarterly data at seasonally-adjusted annual rates.
b. Freddie Mac-Fannie Mae Conventional Mortgage Home Price Index. Quarterly data at annual rates. Yearly data reflect Q4/Q4.
c. Billions of dollars, not seasonally-adjusted.
d. Percent of the number of mortgage loans closed for purchase.



 


MortgageDaily.com
Source:
Freddie Mac

Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage passthrough securities and debt instruments in the capital markets. Over the years, Freddie Mac has opened doors for one in six homebuyers and more than two million renters in America.

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