Citing growth in the gross domestic product, low price inflation and low unemployment, mortgage giant Freddie Mac Thursday predicted a soft landing for the U.S. housing market in 2006.


“Without question America’s joy ride in the housing market is coming to an end,” Freddie Mac said in its January 2006 Economic Outlook statement. “However, … conditions are favorable for a soft landing, perhaps with a little turbulence on the approach.”


The “turbulence” could be caused by a couple of factors, one of them being an inverted yield curve, the mortgage giant said. This is when short-term interest rates are lower than long-term rates, which became the case in the U.S. in December. Normally, long-term interest rates are higher than short-term rates because it’s hard to predict what will happen far out in the future.


Higher short-term rates may lead to a bumpy descent for homeowners who used adjustable rate mortgages to buy their homes, Freddie Mac warned, because the interest rate savings on them are now smaller.


Despite these concerns, overall the government-sponsored enterprise was optimistic for the housing market in 2006.


Factors influencing the optimism included growth in the gross domestic product, which is the total value of goods and services produced by a nation. Third-quarter economic growth came in at 4.1 percent, Freddie Mac said, describing this as a “healthy number.” Freddie Mac’s chief economist expects “strong” economic growth for 2006.


Freddie also expects inflation to be low, at 2.5 percent, throughout 2006, another good sign. Also, the unemployment rate is expected to stay between 4.9 and 5 percent in 2006.


Mortgage rates, a critically important factor for the housing market, will average 6.4 percent over the year, according to Freddie Mac. This could be good news for the market.


“At 6 and 7 percent we still see upward movement or, at worst, sideways-moving price projections,” Michael Sklarz, chief valuation officer for Fidelity National Financial, said in an Inman News interview in December 2005. Other experts have seconded this opinion.


Adjustable-rate mortgages will lose some of their appeal in 2006, Freddie Mac predicted, falling from the 31 percent share of applications in 2005 to around 27 percent.


Housing starts will fall as much as 9 percent, Freddie Mac warned, to 1.90 million units. Homes sales are predicted to slow to 7.10 million units, a 5 percent drop, but still the third best level ever.


Freddie Mac believes homes will continue to appreciate, with a growth rate around 7 percent.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription