Home sales in the U.S. will drop as much as 10 percent in 2006, a decline caused by higher interest rates and housing market jitters, mortgage giant Fannie Mae said in a report Tuesday.


Economists at the government-sponsored enterprise said their best guess is that sales will fall 8.4 percent, to 7.62 million units. That would be the first annual decline since 2000, when national sales dipped slightly, said David Seiders, chief economist of the National Association of Home Builders.


Though the decline will mark the end of a five-year run that helped fuel consumer spending and economic growth, even Fannie’s predicted level for 2006 would be the third-strongest year on record for home sales, the economists noted.


Fannie Mae Economists David Berson and Molly Boesel said purchase originations and refinance activity should also drop off. They predicted purchase originations would dip 2.3 percent to $1.45 trillion. Refinance activity will fall 51.6 percent to $653 billion, the two predicted in Fannie’s “Economic and Mortgage Market Developments” semiannual housing survey.

“Despite a surprising jump in new home sales for October, the housing market likely has peaked,” the economists said.

Berson and Boesel said home price gains are expected to “slow sharply” in 2006, down to about 3 percent after a couple years of double-digit growth.

The adjustable-rate mortgage share of loans is expected to stay at about 30-31 percent, due to high home prices, the Fannie economists said. They don’t predict an increase in use of fixed-rate mortgages until home price gains moderate for several years.


The two are joining an increasingly loud chorus of voices, including the National Association ofo Realtors and the Mortgage Bankers Association, predicting a slowing of the housing market in 2006.


Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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