Washington, DC, July 10, 2006--Rising interest rates and climbing energy prices have weighed on housing activity, but 2006 should still be the third strongest year on record, mortgage finance company Freddie Mac said on Monday.
"Though the direction of housing activity is unambiguously heading cooler, we remain confident that the climate is still temperate and that 2006 will finish as the third strongest year ever for the national housing market," Freddie Mac said in its monthly economic outlook.
"In the second half of the year, the markets, businesses, and consumers will need to adjust to an economy in transition from above trend growth driven in large part by a housing boom to below trend growth exacerbated by higher energy prices and a cooling housing market," it added.
Freddie Mac said it expects 30-year mortgage rates to average 6.8 percent for the remainder of 2006, and for gross domestic product to grow 3.5 percent this year, slowing to a 3.3 percent advance in 2007.
Consumer prices were expected to rise 3.1 percent in 2006 before downshifting to a 2.5 percent increase the following year, it said.
Freddie Mac said if the current pace of hiring persists, the economy will generate 1.6 million to 1.8 million new jobs this year. It forecast the unemployment rate would rise to 4.8 percent by the final quarter of this year, climbing further to 4.9 percent in 2007.
Freddie Mac forecast housing starts to fall 7 percent from 2005 to 1.92 million units in 2006 and drop another 9 percent in 2007 due to rising home prices and mortgage rates.
Last week, Freddie Mac said rates on U.S. 30-year mortgages rose to an average 6.79 percent, the highest since May 2002.
The U.S. economy grew at a 5.6 percent annual pace in the first quarter, according to Commerce Department data, but economists expect growth to downshift from here.
Meanwhile, the Federal Reserve raised interest rates for a 17th straight time to keep inflation pressures from building to an economically dangerous level.
Freddie Mac is a mortgage finance company chartered by Congress to boost liquidity in the mortgage market by buying mortgages from lenders to package into securities for investors or to hold in its own portfolio.
