WASHINGTON - The Federal National Mortgage Association is predicting that next year home sales - spurred by low interest rates and a pickup in economic growth - will reach their highest level since 1978.

Sales of existing and new homes will rise by about 8% to 4.8 million in 1994, according to the company's chief economist, David Berson.

Among Fannie Mae's other projections for 1994:

* Mortgage originations will slide to about $855 billion in 1994, down from this year's record $1.07 trillion.

* Though refinance transactions will fall, purchase originations will rise by 17% to a record $590 billion.

* Long-term interest rates will rise by only 25 to 50 basis points.

Lacking In the Rates

Separately, the company released data that showed that most borrowers who refinanced their adjustable-rate mortgages chose fixed-rate loans.

Using data on refinance transactions where both the original and refinanced loans were held by Fannie Mae, the company said that 85% of adjustable loans were replaced with fixed-rate loans this year.

"Consumers clearly want to know that their monthly payments will not change over the life of the loan," said Donna Callejon, senior vice-president for single-family marketing at Fannie Mae.

The trend is fueled by the low interest rates, she added.

Many Choose Shorter Terms

The company's data for the first three quarters of 1993 showed that of those homeowners who had adjustable loans and chose to refinance, 52% selected a 30-year fixed-rate mortgage, while 34% picked a 15-year fixed-rate loan. Only 6% of the group chose to stay with an adjustable product.

Fannie Mae's data also showed that more than a third of refinancing borrowers with fixed-rate loans chose to take out fixed-rate mortgages with shorter terms.

Because of low interest rates, refinancing borrowers have been able to cut their terms by half, while keeping their monthly payments about the same.

Ms. Callejon added that consumers buying homes have selected shorter-term mortgages.

Dramatic Shift

As a result, these shorter-term loans make up much more of Fannie Mae's business than before. Last month, 29.5% of the company's total business consisted of 15-year, fixed-rate mortgages, up from 11.5% in January 1991.

Twenty-year mortgages were also more popular; they made up 3.5% of the company's business in November 1993, up from 0.7% in January 1991.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.