Nothaft Forecasts Slowing Home Sales

Freddie Mac chief economist Frank Nothaft sees home sales slowing in the fourth quarter as higher mortgage rates take a bite out of housing demand and house prices begin to moderate.House prices have been rising on average at a 14%-16% clip for the past year. But Mr. Nothaft says he expects a single-digit increase in the fourth quarter and a rise in the 7% range next year. He noted that existing-home sales declined by 2.7% in October. "We may see some further retrenchment in homes sales and housing demand in the fourth quarter, and we may very well begin to see a moderation in house price growth," Mr. Nothaft told MortgageWire. The Freddie Mac economist called the recent report by the U.S. Census Bureau that new single-family home sales jumped 13% in October (to a seasonally adjusted annual rate of 1.42 million units) an "aberration." He said he expects the November report to show a sizable decline. "It will probably drop by 200,000 units," Mr. Nothaft said. The 30-year mortgage rate rose 50 basis point in October to 6.25%, and he projects that the 30-year rate will average 6.5% in 2006, which will hurt the refinancing business. His forecast calls for mortgage originations to decline by 14% next year to $2.5 trillion. Mr. Nothaft estimates that his year's originations will total $2.9 trillion -- the second-best year ever.