Inflation and mortgage interest rates are expected to remain stable through the first half of next year, which would mean a steady rate of housing sales and new construction over the next 12 months, the Federal National Mortgage Association said this week in its annual economic forecast.
The association -- popularly known as Fannie Mae -- is a federally chartered corporation that provides capital to mortgage lenders by purchasing their loans and reselling them, or by pooling hundreds of loans and selling mortgage-backed securities in national and international capital markets.
Fannie Mae buys 10 percent of all home mortgages sold on the secondary market and, because of the interest-rate sensitivity of its business, closely monitors economic trends.
Timothy Howard, Fannie Mae's senior vice president and chief economist, said he expects the housing industry -- particularly single-family housing -- to have a "fairly good year" through next summer.
While some housing economists are predicting that recent efforts by some lenders to tighten credit standards and income requirements for borrowers could hurt the housing industry, Howard said that stable interest rates and rising income growth expected over the next few months should keep housing affordable.
However, Howard added that he does forecast a slight rise in mortgage interest rates during the second half of next year. He attributes this to an expected increase in the inflation rate during that period and to an improving trade balance because the dollar is expected to continue to drop in international markets.
"Up until very recently, the previous strength in the dollar has noticeably depressed the U.S. inflation rate," Howard said. "By the middle of 1986, however, this year's decline in the dollar should actually produce some upward pressure on U.S. inflation."
Next year is expected to bring a drop in new construction of multifamily housing projects. Howard said the rate of new multifamily starts has been artificially high this year as builders have hurried to take advantage of existing tax benefits.
Even if Congress does not adopt tax reform legislation, starts of multifamily units will drop, he predicted. If Congress adopts legislation similar to a weakened version of the Reagan administration's proposed tax reform package, the changes in tax benefits for builders of multifamily units could cause the rate of multifamily starts to drop by as much as 20 percent, he said.
Howard said that construction of nonresidential space, primarily office buildings, also has been slightly higher than otherwise would have been expected this year because of large institutional investors taking advantage of the existing tax benefits for real estate development in the shadow of proposed tax reforms.