Freddie Mac Predicts Housing Rebound

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NEW YORK (MainStreet) — Apparently, not all is lost for the housing market.

Freddie Mac (Stock Quote: FRE) just released a report penned by chief economist Frank Nothaft that paints a hopeful picture of the housing market just in time for the spring selling season.

"The housing market may also be poised to shake off the frigid sales pace of January and February, when new home sales slipped to the lowest pace since the Census Bureau began the series in 1963. Driven by low mortgage rates and home prices well below peaks, homebuyer affordability is at the highest level in at least forty years, according to the National Association of Realtors. Indeed, sales contract signings for existing homes were up in February, positioning the market for a bounce up in settlements during the second quarter, the traditional time for the seasonal upswing in sales."

Nothaft’s optimistic about real estate, despite the fact that so few other economists are willing to peg the “rebound” stake into the ground when it comes to housing. It's mostly because Nothaft likes what he sees in the U.S. job market. He cites a “stronger than expected” March unemployment number (it was 8.8% and the economy added 216,000 jobs, according to the Department of Labor). And housing prices have dropped so low in the last three years that taken together, Nothaft believes these factors could create the perfect recipe for a spring rebound, especially as (hopefully) eager house-hunters start hitting those Sunday open houses across the country in coming weeks.

Other new data helps set the stage for a housing market rebound too. Nothaft points out there was a bounce in “closed” home sales in February, and notes that this might spur a spring pick-up in housing.

“Expect to see a bit of spring in home sales activity during the second quarter,” he says. “Sales contract signings for existing homes were up in February, positioning the market for a bounce up going into the traditional home-buying season.”

All told, Nothaft estimates the U.S. residential real estate market will be up 5% in 2011, compared to 2010. He expects interest rates to remain low, despite some fresh evidence of growing inflation this year (particularly with consumer goods and energy costs).

“With the Federal Reserve maintaining its accommodative monetary policy and Treasury note purchase program, short-term rates will remain low and supportive of household borrowing,” he writes. He does note that long-term interest rates should “inch higher” in the second half of 2011, which could reduce the urge to refinance, but not keep new homebuyers away from the market.

Nothaft ends his missive just like he started it: on an upbeat note.

“Expect the economy and housing market to follow the cherry trees’ lead: Shake off the cold and show a bit of spring in activity,” he concludes.

But that’s a lot of cold to shake off, and all the cherry blossoms in the world aren’t going to change the fact that the U.S. housing market has been badly damaged. Nothaft seems to think this is the bottom, and that there’s nowhere to go but up.

We hope that he’s right.

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