Freddie Chief Economist: Housing Threats Loom

January 6, 2012

While most recent indicators have been upbeat about the economy inching toward a recovery in 2012, Freddie Mac’s chief economist warns that threats still loom, particularly for housing. 

Freddie’s Chief Economist Frank Nothaft says that foreclosures will continue to put downward pressure on overall home prices and most likely remain high throughout 2012, although at lower levels than last year. He is forecasting for home prices to begin stabilizing in the second half of the year. 

Another looming threat: A double-dip recession, Nothaft says. He predicts a one-in-four chance that the U.S. is heading back into a recession, although that risk is lower than what he predicted six months prior. Also, high unemployment continues to threaten the recovery in the housing market and increase foreclosures. Nothaft predicts little movement in the unemployment rate throughout the year. 

Still, mortgage rates have helped push housing affordability higher and has been at record lows in recent weeks. Nothaft expects rates to stay low by historical standards, but he is forecasting that the 30-year fixed-rate mortgages (which have been hovering at 4 percent or lower in recent weeks) will tick up to 4.8 percent by the end of the year, and 5.6 percent by the end of 2013. 

Overall, several recent indicators have pointed to a real estate market on the mend — pending sales contracts are up, existing and new home sales have increased, construction starts and spending are rebounding, and lower vacancy rates are occurring in the rental market. 

Still, Nothaft told Market News International that the housing market is “moving in the right direction,” but “very slowly.” 

Source: “Freddie Mac Economist: 25% Risk of U.S. Double Dip Recession,” Market News International (Jan. 5, 2012)

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