Economic Outlook for 2006

Economic Outlook for 2006:

On a Web conference call hosted by The Homeownership Alliance, five of the industry's top economists discussed the outlook for the housing and mortgage finance markets for 2006. Participating on the panel were David W. Berson, chief economist for Fannie Mae, David Leareah, chief economist for NAR, Paul Merski, chief economist for the Independent Community Bankers of America, David Seiders, chief economist for NAHB, and Frank E. Nothaft, chief economist for Freddie Mac. For 2006, Leareah predicted that existing home sales would decline between four and five percent, new home sales would drop five to six percent, and housing starts would fall seven to eight percent.

Nothaft speculated that there would be a reduction in mortgage originations of about 14 to 16 percent and cash-out activity would be half the level of 2005. Both Seiders and Merski suggested that the 30-year fixed rate would end up around 6.7 percent for 2006. Nothaft said he expects the share of adjustable-rate mortgages to drop from the 30 percent level of 2005 to 25 percent in 2006.

Opinions differed on predictions of home price appreciation, ranging between three and six percent, down from the 13 percent of 2005. All agreed that though the boom was winding down, housing activity would still be at a healthy level and 2006 could be the third best year ever.

According to all of the members of the panel, investor activity could be one of the the biggest risk and unknown for 2006. There is the possibility that investors will not only stop investing, but will move units back onto the market in large volume. The question is where they would put their money if they pulled it out of the real estate market.

The consenus was that the Feds will probably raise the federal funds rate at least once more in January and possibly a second time in March. They predicted the rate should level off to about 4.5 to 5 percent this year.