July 11, 2007

US housing sales set to tumble to six-year low

Total transactions likely to fall 7% this year due to rising rates and tougher loan standards

BOSTON - HOME sales in the United States will drop this year to their lowest level since the start of the housing boom in 2001, as mortgage rates and foreclosures increase, according to a forecast by Freddie Mac.

Sales of new and previously owned homes probably will total 6.28 million, down 7.1 per cent from last year, according to the world's second-largest mortgage buyer.

It would be the lowest since 6.2 million homes were sold in 2001. Residential lending will drop to US$2.75 trillion (S$4.18 trillion), the lowest since 2002, the company said in Monday's forecast.

Buyers are finding it more difficult to finance purchases because of higher mortgage rates and stricter lending standards, Freddie Mac said. The average US rate for a 30-year fixed-rate home loan probably will be 6.7 per cent this quarter, according to the forecast.

That is the highest level so far this year, and it is half a percentage point above the 6.2 per cent average in the first three months of the year.

'Several risks - the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of sub-prime borrowers - point to continued weakness in the months ahead,' Freddie Mac chief economist Frank Nothaft said in the forecast.

The number of previously owned homes on the market reached a record 4.43 million in May, according to the National Association of Realtors. Sales fell to 5.99 million at an annualised pace, the lowest in four years, the real estate trade group said in a June 25 report.

The share of all mortgages entering foreclosure rose to 0.58 per cent in the first quarter, the highest in a survey that goes back to 1972, the Mortgage Bankers Association said on June 14.

Sub-prime loans entering foreclosure rose to a five-year high of 2.43 per cent, up from 2 per cent, and prime loans entering foreclosure rose to a record 0.25 per cent.

US home sales rose to a record 7.46 million in 2005 before dropping to 6.76 million last year, according to Freddie Mac.

Demand is forecast to rise next year to 6.39 million in sales, and further to 6.63 million in 2009, the mortgage buyer said.