Banks will have adjustments to make in residential lending next year even though the housing recovery will continue, according to an economic forecast issued Monday.
Refinancing activity will decline, but improvements elsewhere will cushion the blow, said Frank Nothaft, Freddie Mac's chief economist.
"Next year's likely pickup in home sales won't be enough to offset the coming drop in refinance activity," Nothaft wrote in a
Mortgage rates will remain below 4% in 2013 while housing prices likely will rise by 2-3%, he said.
A retreat in the unemployment rate to about 7.5% will add roughly 1.2 million households and propel housing starts to an annual pace of 1 million by the fourth quarter after seasonal adjustments, Nothaft said. Vacancy rates will continue to edge down as well, he said.
Nothaft premises his predictions on lawmakers reaching a deal to avoid a series of tax increases and spending cuts set to take effect on Jan.1. "If we go over the fiscal cliff, these 2013 housing crystal ball predictions …shatter," Nothaft said.