Slower Increases in Home Prices Seen

Average U.S. home prices are expected to rise at an annualized pace of 6% to 6.5% in the second half of this year, slower than a 7.6% to 7.9% increase during the first six months, home finance company Freddie Mac said Tuesday.

The slower home appreciation in the latter half is still “respectable” and should help “to maintain housing as a wise investment for families and a sturdy prop for the current fragile economy,” Freddie Mac said.

Continued healthy increases in home prices are considered crucial at this juncture of an uneven economic recovery.

Homeowners, whose stock investments have been hammered, have enjoyed a rapid rise in home equity. They have profited either from selling their houses or from taking out loans against the higher value on their homes.

A firm U.S. housing market, along with the lowest mortgage interest rates in 36 years, probably will push home sales and mortgage loan supply to record highs this year, Freddie Mac said.

If low interest rates continue into 2003, home sales could eclipse this year’s levels, the company said.

Combined new- and existing-home sales are expected to reach 6.5 million units in 2002, surpassing last year’s record 6.2 million units. Total home sales could climb to 6.7 million units in 2003, Freddie Mac said.

Meanwhile, mortgage lenders are poised to issue $2.2 trillion in new mortgages this year, up from last year’s record $2.1 trillion. In 2003, mortgage origination could reach $2.2 trillion, Freddie Mac said.

Interest rates on 30-year fixed-rate mortgages--the most popular U.S. home loan product--are expected to average 6.3% in the third quarter and 6% in the fourth quarter, down from 7% in the first quarter.

Freddie Mac forecast that 30-year mortgage rates would average 6.1% next year.

Interest rates have continued to plummet over the last four weeks. The yield on 10-year Treasury notes dropped half a percentage point, driven by a weak economy, low inflation, a poor stock market and demand for safer securities, fueled by fears over a U.S. military strike against Iraq, Freddie Mac said.