Freddie Mac says rising mortgage rates won't stop the housing recovery in 2011

by JON PRIOR

Although home sales may not improve as much as expected in 2011 because of rising mortgage rates, Freddie Mac Chief Economist Frank Nothaft still estimates a 10% increase from last year as housing and the overall economy pushes through to recovery.

In his economic outlook for 2011, Nothaft predicts home sales will reach an annual rate of 5.7 million by the fourth quarter. At the end of the third quarter in 2010, the market was on an annual rate of 3.9 million home sales. After the homebuyer tax credit expired in April, home sales plummeted by 27% in July, according to National Association of Realtors data.

Since then, the only spur to the market has been historically low rates, hovering near 4% on average, and spurring a very gradual recovery from July. But even rates have begun to increase in recent months, reaching as high as 4.83% in the middle of December for the 30-year fixed-rate loan. Nothaft predicts rates will reach as high as 5.5% by the end of the year.

But he said with prices falling as much as 30% from their peak in 2007, affordability is still very high. Unemployment should reach below 9% by the end of 2011, consumer spending is improving, and other factors could overwhelm the disappearance of 4% mortgage rates, Nothaft said.

"More robust growth of jobs and incomes should offset much of the impact of the rise in rates, and help make 2011 a year of recovery for the housing market, as well as the economy overall," he said.

URL to original article: http://www.housingwire.com/2011/01/12/freddie-mac-says-rising-mortgage-rates-wont-stop-the-housing-recovery-in-2011