Freddie Mac estimates home sales to fall another 23 percent in 3Q

In its September economic outlook, Freddie Mac expects third quarter new and existing home sales to reach an annualized rate of 4 million, a possible 20.7% decline from last year and 23% drop from the previous quarter.

September 18, 2010

In its September economic outlook, Freddie Mac expects third quarter new and existing home sales to reach an annualized rate of 4 million, a possible 20.7% decline from last year and 23% drop from the previous quarter. Freddie said recent reports of plummeting home sales and near record-high delinquencies has shaken confidence in the "fragile" housing recovery.

Freddie also predicted that the 30-year fixed-rate mortgage rate would head back up through the rest of this year and the next, passing 5% in the last quarter of 2011. Freddie also forecasts that the unemployment rate would start to fall, reaching 8.6% by the end of next year as well.

Freddie has considered two scenarios for how the market will respond to the missing government stimulus. The first is a "payback" of the "borrowed" sales over a gradual recovery. Under this scenario, home sales would drop another 10% in August from the low in July that start to climb out of the bottom. This assumes about 600,000 of the home sales
were pulled forward in response to the tax credits. The second scenario only half of these sales were pulled forward, and the rest were purchases that otherwise wouldn’t have been made without the credit. Under this scenario, sales would recovery faster, perhaps by the end of October.

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