Freddie Mac economists are predicting an economic slowdown, but say 1999 will be a good year for the housing market.
They expect the economy to cool but not to fall into a recession. Economic growth of 2% to 2.5% can be expected, they say, compared with last year's rate of about 3.5%.
Robert Van Order, chief economist for the agency, said that "3.5% is faster than the economy can grow in the long run," adding that "2.5% is closer to normal. It is hard to believe the economy could grow beyond that."
Home price growth should stay above inflation, in the range of 4% to 4.5% in 1999, according to Freddie Mac. The agency also predicts mortgage originations will fall to about $1.1 trillion, making it the second-best year in history, after 1998.
"Refinances will dry up toward the end of the year," Mr. Van Order said. "By the end of 1999, rates will probably be around 7%, and people have already done their refinancing."
In the last six months of 1998, the agency said 60% of mortgage originations were for refinancing. Mr. Van Order said that figure would fall back to the normal range for a market with stable rates-about 25%-by yearend.
Freddie Mac reported a small dip in mortgage rates last week in its primary mortgage market survey. The 30-year fixed-rate mortgage averaged 6.78% for the week ending Jan. 22, down from the previous week's average of 6.83%. Mr. Van Order said though the market may be slower on the originations side, mortgage bankers still should do well in 1999 because of falling rates.
"Volume for mortgage bankers will be off, but the servicing business will be stable," Mr. Van Order said. "As people paid off loans last year, bankers were not collecting servicing income from those loans."
Mr. Van Order said adjustable-rate mortgages will continue to be less popular than fixed-rate loans because of low interest rates and the small spread between the two.
With the possibility of a slowdown toward yearend, Mr. Van Order said, housing starts are expected to drop to an annual rate of 1.4 million by 2000, compared with 1.6 million last year.