Nothaft Sees Small Drop in '05 Home Sales

Freddie Mac's chief economist does not expect a big jump in mortgage rates next year, and he is forecasting that home sales and single-family starts will decline by only 3%-5% in 2005.Even though his forecast calls for the Federal Reserve Board to continue to push the federal funds rate up to 3% by midyear and 3.5% by year-end, chief economist Frank Nothaft said he expects the yield curve to flatten. He is forecasting that the rate on the 30-year fixed-rate mortgage will average 6 1/8% by midyear 2005 and 6.3%-6.5% by year-end. "I think there will be a slight narrowing in the spread between the 30-year mortgage and 10-year Treasury," he told MortgageWire. At a Consumer Federation of America conference, Mr. Nothaft said house price appreciation should moderate over the next couple of years, to 5%. The government just reported that house prices increased at an annual rate of 13% in the third quarter.