Freddie Mac Sees No Double Dip in Housing

By:: Peter King | September 14, 2010

Recent declines in home sales do not appear to indicate a weakening of the underlying housing market, but instead reflect sales pulled forward by the homebuyer tax credit, according to a new analysis by Freddie Mac.

While not ruling out the possibility of a broader downturn, Freddie Mac reported that the recent decline in home sales appear less than what would be expected in a “double dip” renewed downturn of the housing market and overall economy.

Following the deadline for the homebuyer tax credit, existing home sales fell 27 percent in July, according to the National Association of Realtors, to an annual rate of 3.83 million. It was the lowest level reported in half a century, raising fears that the market was sliding into another downturn.

However, Freddie Mac noted that pending sales, which typically precede actual sales by one to two months, rose 5 percent in the same month. That, along with relatively stable home prices in recent months, suggest the downturn is primarily due to the end of the tax credit and not a fundamental weakening of the housing market itself.

The quasi-governmental lender also reported that the tax credit appears to have generated additional home sales, rather than simply accelerating sales that would have happened anyway. However, it expects sales to remain depressed for another four to six months as the aftereffects of the credit wear off.

The report said home sales and prices have leveled out in most regions, but the housing market remains fragile, with continued near-record rates of mortgage delinquencies, a large surplus of unsold homes and high unemployment leaving the market vulnerable to future shocks.

In its economic forecast, Freddie Mac predicted that 30-year mortgage rates will remain below 5 percent into the third quarter of 2011. New home sales are predicted to remain at an annual rate of 4 million-4.5 million through the remainder of the year, then rise to around 6 million in the third quarter of 2011. New housing starts are expected to increase from an annual rate of 600,000 currently to 1 million by the third quarter of next year.

Economic growth is expected to pick up significantly in 2011, with Freddie Mac predicting real GDP to increase at a an annual rate of 4.2 percent in the second half of the year, up from 1.6 percent reported for the second quarter of 2010.

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