Freddie Mac Raises Estimate of ’04 Home Sales, Price Gains
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Freddie Mac, the second-largest mortgage financier, raised its estimate for 2004 home sales and price gains, saying the second-lowest mortgage rates in almost four decades will boost the American housing market.
Sales of new and existing homes will reach a record 7.65 million this year, and prices probably will increase 8.6%, matching last year’s gain, as the 30-year fixed mortgage rate averages 5.9%, said Freddie Mac Chief Economist Frank Nothaft. A month ago he estimated 7.54 million sales, a 7.1% price rise, and an average fixed rate of 6%.
Consumer spending slowed from April to June, pushing mortgage rates below 6% after reaching a high this year of 6.3% in May, Mr. Nothaft said. The housing market likely won’t be affected if Federal Reserve policy makers raise the overnight lending rate when they meet in two weeks, he said.
“Whatever the outcome of the Fed’s deliberations, fixed-rate mortgage rates are likely to remain low,” Mr. Nothaft said in a statement.
The lower-than-expected mortgage rate will push home prices higher as cheaper financing means buyers can bid more for a property while keeping their monthly payment the same, Mr. Nothaft said.
Last year, the annual average U.S. fixed rate was 5.8%, the lowest since 1965, according to data by Freddie Mac, based in McLean, Va. Home sales set a record for the third consecutive year in 2003, reaching 7.19 million.
Freddie Mac’s new home-sale projection would put 2004 6.4% ahead of last year. Last year, sales gained 9.9% from 2002.
Next year, sales probably will reach 7.1 million, Mr. Nothaft said, raising his forecast from 7 million a month ago. Both estimates would make 2004 the third-best year on record.
Mortgage lending probably will total $2.6 trillion this year, Mr. Nothaft said. A month ago, he forecast $2.4 trillion. Freddie Mac raised the number it uses for 2003 lending to $3.9 trillion, higher than the numbers in earlier reports.
Consumer prices may grow 3.5% this year as higher oil prices fuel inflation, Mr. Nothaft said. Last year, prices increased 1.9%.
A decline in oil prices over the last two weeks resulted in Mr. Nothaft lowering his inflation forecast from the 3.7% estimated a month ago. Crude oil in New York has fallen 12% from the record high seen last month, though the price remains 48% higher than a year ago.