If you're a wanna-be home owner who's been waiting patiently for mortgage rates to slide just a little bit more, there's bad news: Rates are not going down any further, says David Berson, chief economist at Fannie Mae.

But the good news is, rates aren't going up anytime soon, either, according to Berson, who issued his semi-annual housing forecast last week. Even if the Fed should cut short-term rates once again when it meets later this month, the economist doesn't think long-term loan rates are going to move much at all.

Just as the nation's financial markets sent mortgage rates down early last year in anticipation that the central bank would ease monetary policy to ensure that the current economic slump would not end in a recession, Berson explained, the markets are now looking ahead to a stronger economy next year and some Fed tightening.

That's why mortgage rates have actually gone up in the face of five separate half-percent cuts in the federal funds rate banks charge one another for overnight loans. And since they've already risen, the outlook now is that they'll "remain relatively flat" for the next year or so.

So look for rates on 30-year fixed loans to run in the 7-7.25 percent range for a while.

"We will see some pick-up eventually, but not very much," Berson said.

Not that the Fed's cuts haven't paid off for home buyers. They have, or at least they are beginning to.

"Typically, the impact of changes in monetary policy aren't felt until six months or so after the fact," the Fannie Mae economist said. "So we're just starting to see a positive impact on the economy, and it should last into next year."

Because of the Fed and several other factors -- a refinance boom that will result in a total of $40 billion in consumer spending when it officially ends later this year, the pending tax cut and a rebound in stock prices are a few -- Berson is projecting economic growth to re-accelerate in the second half of 2001.

And by year-end, he said, the economy should be pulling ahead again at better than a 3.5 percent clip, a pace that should be sustained in 2002 and enough to reassure would-be buyers that the downturn has ended.

Normally when the economy tanks, housing is the first sector to feel the pinch. After all, it is the most interest sensitive of any business. But this time around, housing has remained extremely -- and, to some, surprisingly -- strong.

No, the economy hasn't fallen into a recession -- and probably won't. But growth has been anemic of late. Yet, housing has been sterling, so much so that Berson is betting that two key industry benchmarks -- mortgage originations and new home sales -- will hit their all-time highs this year.

"Not a lot of businesses today can talk about a record year," he pointed out.

Even though home sales declined in April, Berson is still expecting originations to reach a record $1.52 trillion this year. The previous record was $1.45 trillion in 1998.

"For originations not to reach a record, the market would have to slide at an unimaginable pace," he said.

New home sales plummeted in April, from an annual rate of nearly 1 million units to less than 900,000, and existing home sales dipped 4 percent to 5.2 million units.

But the Fannie Mae economist cautioned against reading too much into a single month's numbers.

If both new and existing home sales were to continue at their April rates for the entire year, each would end the year at all-time highs, he said.

Fannie Mae's mid-year forecast calls a 3 percent drop in resales for the entire year, from 5.1 million units to 4.95 million. But new home sales should hit a record 889,000 units, 1.4 percent above 877,000 last year. The previous high for new sales is 885,000, also set in 98.

Berson expects refi activity to peak in the second quarter as applications finally work their way through the approval process and then begin tailing off. For the year as a whole, though, refinancing will account for a 46 percent market share. In 1998, refinancing accounted for 50 percent of total origination, but the record of 55 percent was set in 1993.

With the end of the refi boom, Fannie Mae expects originations to slow next year, dropping to about $1.25 trillion. But that would still result in the fourth best year ever, the economist pointed out.

For more articles by Lew Sichelman, please press here.

Published: June 18, 2001

Use of this article without permission is a violation of federal copyright laws.