Strong Price Growth Leaves Some Expecting a Cool Down

Freddie Mac expects to see price declines in some hot housing markets, according to the company's president and chief executive Richard Syron.

"Along with many other informed observers, we do anticipate some cooling in the hotter markets. And indeed, we are prepared to see some retracing in house prices in some of these markets where gains, quite frankly, outpaced the underlying economic drivers," he said.

However, the government-sponsored enterprise does not expect housing prices will decline substantially on a national basis," he added.

Mr. Syron made his remarks during a conference call with investors and Wall Street analysts last week.

Separately, the Office of Federal Housing Enterprise Oversight reported that housing prices jumped in the second quarter, which sent the annual rate of price appreciation up to 13.4% - the largest increase in over 25 years.

Using Fannie Mae and Freddie Mac data on repeat home sales and refinancings, OFHEO reported that prices rose 3.2% in the second quarter, up from 2.55% in the prior quarter.

"There is no evidence here of prices topping out," said OFHEO chief economist Patrick Lawler. "On the contrary, house price inflation continues to accelerate, as some areas that have experienced relatively slow appreciation are picking up steam."

Freddie's CEO also discussed economic conditions, rising gas prices and GSE regulatory reform in a long dissertation following a presentation of Freddie's first- and second-quarter financial results."

Mr. Syron stressed that Freddie Mac supports GSE reform legislation that strengthens oversight of Freddie, Fannie and the Federal Home Loan Banks.

But he noted that Congress needs to recognize that the GSEs are an "integral part" the housing sector, which has been an engine of economic growth over the past five years.

Without the benefit of a housing boom, he pointed out the economy would look "pretty anemic."

So far, the wealth effect, provided by rising housing prices, has offset the drag caused by rising oil prices, he said. But that could be changing. "We are at a very, very delicate point in that process."

He declined to comment specifically on a Senate bill that would limit the size of Fannie and Freddie's mortgage portfolios and reduce their earnings.

Fannie and Freddie oppose the Senate bill. But Mr. Syron said he is confident Congress will pass legislation that focuses on strengthening regulatory oversight and allows the GSEs to continue to serve their housing mission.

"So by all means we want to strengthen regulatory oversight and build confidence. But in doing so, it is essential to remember that the system of ours reflects a delicate balance and GSE regulatory reform must keep this balance in mind," Mr. Syron said.

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