Washington, DC, April 18--Here are some highlights from Freddie Mac’s April 2005 Economic Outlook released last week.
The first quarter of 2005 has turned out to be jolly good for housing – new home sales rose 9.4 percent in February to an annualized 1.23 million units, up from a revised January sales rate of 1.12 million units, and existing home sales and sales of condos and co-ops are also running at a brisk pace.
The median sales prices of all three types of homes are up strongly too, and single-family housing starts hit a new record (seasonally-adjusted, annual rate) in February. While we don’t think this pace of activity can be maintained with our projection of higher interest rates – and we are expecting 2005 totals to fall short of last year’s – housing should mark a very good year when the year-end tally is in.
Housing starts. The housing start numbers for the first two months were a surprise to the upside, coming in at 2.14 million units at an annual rate. However, gradually rising rates this year will have an effect on starts and we expect the pace of starts to moderate to an annual rate of about 1.85 million units for the second half, pulling total starts down 2% from last year’s pace.
Home sales. Home sales in 2004 hit a record of 7.16 million units. Home sales in 2005 will not be far behind, and are expected to come in at approximately 6.93 million units.
Home value appreciation. As mortgage rates continue to rise in 2005, the demand for housing will slow. This will have the effect of slowing the rate house prices have been rising nationally from 10.7% in 2004 to a forecasted 6.8% in 2005.
Mortgage activity. Given the sensitivity of housing market activity to interest rates, the impact of our forecasted rates will be to dampen mortgage originations in 2005. As rates rise, we expect that originations will begin to decline from more than $600 billion in the first quarter to approximately $439 billion by the end of the year. In response to the rising rates, the refinance share of originations will decline from 48% of volume in the first quarter and drop to 32% of volume in the fourth quarter. For 2005, refinance volume is expected to comprise 35% of origination volume. Finally, in response to slightly lower rates of home price appreciation we forecast residential mortgage debt outstanding to grow at 12.5% in 2005.
