Housing Prices Will Bottom in 2012: Freddie Mac

NEW YORK ( TheStreet) -- Housing prices are likely to move lower and bottom out in 2012 with modest appreciation likely in 2013, Freddie Mac ( FMCC.OB) Chief Economist Frank Nothaft said in his outlook on Wednesday.

The Freddie Mac Housing Price Index is forecast to dip by 1% in 2012, marking the sixth consecutive year of declines. The index is expected to move higher by 2% in 2013.

The economist said in his report that national indexes masked sizable variation in local house-price performance. "Some markets have appreciated over the past year and are likely to gain further in 2012, while those markets with higher vacancy rates and relatively large distressed sales will continue to see downward price pressure over the next year."

Mortgage rates are likely to stay "very low" at least till mid-2012 thanks to the Fed's "Operation Twist". The economist also expects housing market to be better in 2012 though not "robust".

Nothaft believes the rental market could provide some support to housing activity in 2012. "A full-fledged recovery in the housing sector will likely elude the U.S. in 2012, but new construction and home sales are expected to be greater than in 2011," he wrote, pointing to rising rents and falling vacancies in most markets. "Good rental market fundamentals and a dearth of new apartment completions should translate into more starts of rental buildings with five or more units, pushing total housing starts up slightly more than 10 percent in 2012."

The better fundamentals in the rental market could also drive up refinancing and origination volume of multi-family loans.

On the other hand single-family originations and refinancing activity might see a decline. "While single-family refinance volume is currently strong, many borrowers have already locked in relatively low rates, or are constrained (because of being underwater or having late payments) thus reducing refinance activity over time," according to Nothaft. " Further, somewhat higher mortgage rates in the second half of 2012 (after the expiration of 'Operation Twist') will reduce financial incentives to refinance."

The economist predicts economic growth will likely strengthen to about 2.5% in 2012, with the stronger-than-expected data in recent months providing evidence that momentum is beginning to pick up again. The unemployment rate will continue to edge lower but remain "uncomfortably above 8 percent", he wrote.

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.

>To submit a news tip, send an email to: tips@thestreet.com.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

More from Stocks

Jim Cramer: Schlumberger Predicted the Rise in Oil Prices

Jim Cramer: Schlumberger Predicted the Rise in Oil Prices

Jim Cramer on Zillow's New Business: Buying and Selling Homes

Jim Cramer on Zillow's New Business: Buying and Selling Homes

Jim Cramer: Wabtec Deal Gives General Electric Optionality

Jim Cramer: Wabtec Deal Gives General Electric Optionality

Jim Cramer on the Markets: It's Natural to Have Some Profit Taking

Jim Cramer on the Markets: It's Natural to Have Some Profit Taking

Video: Jim Cramer on the Markets, Oil, General Electric, Zillow and Micron

Video: Jim Cramer on the Markets, Oil, General Electric, Zillow and Micron