Economists at Freddie Mac are more pessimistic about the economy than they were a month ago, and no longer believe mortgage originations will rebound in 2009.

In a forecast issued today, Freddie Mac’s Office of the Chief Economist said total mortgage originations are expected to shrink by about 8 percent in 2009, to $1.65 trillion, before rebounding to $1.82 trillion in 2010. That compares with $3.26 trillion in purchase loans and refinancings originated in 2005.

Just last month, Freddie Mac was projecting that mortgage originations would rebound to $1.92 trillion in 2009 and hit $2.04 trillion in 2010.

Freddie Mac economists boosted their projections for continued growth in FHA- and VA-backed loans, however, saying they should reach $286 billion this year and peak at $340 billion in 2009, a more than four-fold increase from $80 billion in 2006.

Freddie Mac’s latest forecast includes new, lowered projections for economic growth, housing starts, sales and prices in 2009. Freddie Mac also bumped up previous projections for unemployment and interest rates.

Instead of 960,000 housing starts, Freddie Mac now expects work will get underway on 830,000 homes in 2009 — a 12 percent decline from projected 2008 starts and a 60 percent dropoff from the recent peak of 2.07 million housing starts in 2005.

A decline in housing starts would ordinarily take pressure off of inventory. But Freddie Mac now expects only a minor rebound in home sales next year.

Last month, Freddie Mac was forecasting that total home sales would rebound from an estimated 4.86 million this year to 5.13 million in 2009. While Freddie Mac’s projections for 2008 sales remains virutally unchanged at 4.87 million, it now sees 2009 sales topping out at 5 million, down 33 percent from the 7.46 million sales seen in 2005. The forecast for home sales to rebound to 5.6 million in 2010 remains unchanged from October.

Freddie Mac economists also see greater potential for home-price declines than they did a month ago. Last month, Freddie Mac expected a 13 percent decline in the Standard & Poor’s Case-Shiller national home-price index for 2008, followed by a 5.1 percent decline next year and 2 percent in 2010. Now, Freddie Mac projects prices tracked by the index will fall 13.9 percent in 2008, 7.8 percent in 2009, and 2 percent in 2010.

Freddie Mac said it expects 1.3 percent growth in real gross domestic product during 2009, rather than the 2.3 percent projected in October. Unemployment is projected to rise to 7.5 percent in 2009 before falling back to 6.7 percent in 2010. Last month, Freddie Mac projected that unemployment would peak at 6.8 percent next year.

Historically, interest rates sometimes come down when economic growth slows. But with this downturn built on falling home prices and frozen credit markets, Freddie Mac projects rates on 30-year fixed rate mortgages will trend upward slightly in the next two years, rising from 6.1 percent this year to 6.3 percent by 2010. Last month, Freddie Mac projected rates on 30-year fixed-rate mortgages would fall to 5.9 percent in 2009 before spiking to 6.2 percent in 2010.

Freddie Mac’s projected rates for one-year Treasury indexed adjustable-rate mortgage (ARM) loans remained unchanged from a month ago — 5 percent next year and 5.3 percent in 2010.


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