Housing Market to Slow But Not Burst
WASHINGTON, Oct. 12 – The chief economist of Freddie Mac forecast Wednesday a decline in New England home price appreciation next year as a result of rising mortgage rates and modest family income growth.
Frank E. Nothaft predicted that the average rate of price of home appreciation in the region would be 3.9 percent, on pace with the national average of 3.5 percent for 2006.
That is a substantial decline from the surge in New England home prices of 13.7 percent in the 12-month period ended June 30.
Freddie Mac (formally, the Federal Home Loan Mortgage Corp.) , a publicly traded company chartered by Congress in 1970, works primarily in the secondary mortgage market, purchasing mortgage loans from primary lending institutions. This flow of funds helps to control cyclical swings in the housing market and allows for the availability of mortgage funds at all times, according to the company’s Web site.
In the Greater Boston area, the number of single-family home sales has declined although the median selling price has increased, according to quarterly data released by the Massachusetts Association of Realtors.
There were 251 fewer homes sold in the quarter ended June 30 than in the same period last year, but the median price jumped by $21, 925, to $496,925.
Condominiums, on the other hand, sold 660 more units in the Boston area than in the same period in 2004, while the median price tag rose by $22,500, to $352,500.
The recent real estate market boom can’t be sustained, Nothaft said, unless incomes increase by 13 percent and there is “no evidence to support that is happening.”
With unemployment reports not as bad as some had feared and with moderate growth in the economy, Nothaft said, it was more than likely that the Federal Reserve will continue to nudge interest rates up by quarter-point increments.
This, along with rising energy costs, would be likely to translate into higher long-term interest rates, he said.
The effects of hurricanes Katrina and Rita have had an effect on economic growth and labor markets as well, with 200,000 jobs being wiped out last month, he said.
Closed businesses, lost jobs and import-export problems through the New Orleans area will reduce the gross domestic product growth rate by about 0.5 percent as the year comes to a close, Nothaft said, to an estimated 3.5 percent.
He said the reconstruction efforts will cause the cost of construction materials such as roofing, plywood and gypsum board to rise 5 to 10 percent in the coming year.
But nationally, there is a healthy supply and demand for homes, and prices won’t bottom out, Nothaft said.
“There is no national price bubble, so we aren’t expecting a collapse,” he said.
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