ABA Forecasts Sub-7% 30-Year Rate Thru '07

A panel of bank economists is forecasting that conventional 30-year mortgage rates will stay below 7% this year and next, which should support an orderly and gradual decline in housing sales and starts.The American Bankers Association's Economic Advisory Committee says it expects a continuing slowdown in the housing sector and a plateauing of the price of oil at around $70 a barrel. This scenario should allow 3% economic growth for the remainder of the year and take pressure off the Federal Reserve Board to raise the federal funds rate above 5.25%. Three of the nine economists on the ABA's panel say they expect the Fed to raise it again, to 5.5%, by the end of the year. The ABA consensus forecast shows new- and existing-home sales declining by 7% in 2006 to 7.13 million and another 5% decline in 2007, to 6.79 million. Home sales in 2005 totaled a record 7.67 million. U.S. Trust Co. chief economist Robert McGee noted that the committee's forecast is for moderate growth. However, the economists are more concerned that the forecast will be off on the downside. "It was unanimous that we are more concerned with downside risk," Mr. McGee said. "I think that largely reflects the fact that energy prices and housing are two big uncertainties out there."