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Lackluster Spending Tilts Against Homebuying: Freddie

Mortgage giant ""Freddie Mac"":http://www.freddiemac.com/ tied weak homebuyer demand to a drop in consumer expenditures in an outlook it released Monday.


The GSE captured a look at the financial mood of consumers by releasing the ""U.S. Economic and Housing Market Outlook"":http://www.freddiemac.com/news/finance/docs/Nov_2011_public_outlook.pdf, which makes forecasts according to key economic indicators that it uses.

The outlook indexed overall economic health for the nation, finding a small uptick by domestic aggregate demand as it climbed to 3.6 percent ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the second largest gain over the last five years.

Home prices also declined by 25 percent on a cumulative basis from 2006 to 2011, according to Freddie, which tallied up results with the Freddie Mac House Price Index.

Somewhat contrary to the national mood, Freddie found investments in buildings, equipment, and software belting


upward by 14 percent over the third quarter, with residential investment picking up for the second consecutive quarter.

In line with still record-low mortgage rates, the outlook recorded 10-year Treasury yields hovering at around 2 percent, with the benchmark 30-year fixed-rate mortgage correspondingly staying near 4 percent over the last several weeks.

The biggest news from the outlook stems from a projection made by the office of Freddie's chief economist, ""Frank Nothaft"":http://www.freddiemac.com/bios/exec/nothaft.html, who said that recent modifications to the Home Affordable Refinance Program (HARP) could drive single-family originations up by $200 billion to $300 billion.

""Allowing eligible borrowers to refinance (who otherwise may face a limited opportunity to refinance without paying down a significant chunk of their loan principal) and obtain substantially lower interest rates and monthly payments, will likely reduce defaults, ease distressed sales in markets, and provide needed cash flow to borrowers,"" he said in a ""statement"":http://freddiemac.mediaroom.com/index.php?s=12329&item=88481.

""This latter effect can, in turn, support additional consumption spending and be beneficial for economic growth in the long run,"" Nothaft added.

He cited the experiences of borrowers who refinanced their Freddie Mac-backed mortgages over the course of the third quarter, saying that these borrowers would save approximately $2,500 in interest payments over the first year following their refinance.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.

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