ABA Sees Cooling Housing Market Thru '07

The housing market will continue to cool over the next two years as mortgage rates gradually rise to 6.7% by the end of 2007, according to a panel of bank economists."Some of the steam has come off the housing market, but the decline in activity will be gradual and orderly," said Robert McGee, chief economist for U.S. Trust Co., New York, and chairman of the Economic Advisory Committee of the American Bankers Association. The EAC forecast calls for existing-home sales to decline 8.9% to 6.52 million in 2006 as the 30-year fixed mortgage rate climbs to 6.54% in the fourth quarter of this year. Meanwhile, the bank economists are predicting that the Federal Reserve will stop tightening by midyear, with the federal funds rate at 5%. "The impact from higher interest rates on home equity and adjustable-rate mortgages will combine with stubbornly high energy prices to squeeze discretionary spending," Mr. McGee said.