McLean, Va. – U.S. home sales in 2007 will drop to their lowest level since the start of the five-year housing boom in 2001 as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.
Sales of new and previously owned homes probably will total 6.28 million, down 7.1 percent from last year, according to the world’s second-largest mortgage buyer. It would be the fewest since 6.2 million homes were sold in 2001. Residential lending will drop to $2.75 trillion, the lowest since 2002, the company said in Monday’s forecast.
Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said.
The average U.S. rate for a 30-year fixed-rate home loan probably will be 6.7 percent this quarter, according to the forecast. That’s the highest level so far this year, and it’s half a percentage point above the 6.2 percent average in the first three months of the year.
“Several risks – the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers – point to continued weakness in the months ahead,” Freddie Mac chief economist Frank Nothaft said in the forecast.
The number of previously owned homes on the market reached a record 4.43 million in May, according to the National Association of Realtors. Sales fell to 5.99 million at an annualized pace, the lowest in four years, and the median price fell 2.1 percent from a year earlier, the 10th consecutive monthly decline, the real-estate trade group said in a June 25 report.
As mortgage rates climb and financing becomes more expensive, buyers won’t be able to bid as much for a property, Nothaft said.
“Higher mortgage rates will likely impact home prices as well as sales and construction activity,” Nothaft said in the report.
Freddie Mac’s home-price index, measuring property bought with so-called conventional mortgages, or loans under $417,000, probably will gain 1 percent this year, Nothaft said. A month ago, he forecast a gain of 1.5 percent.
