Forecast Predicts Lower Rates Next Year

How this will affect the greater Seattle region is still hard to predict. We have not felt the housing downturn as much as some regions. I believe that values are still adjusting back to a norm following a very inflated marketplace.

A weakening U.S. economy is setting the stage for lower interest rates, according to a UCLA Anderson Forecast released today.

The forecast predicts real gross domestic product will rise no more than 2.7 percent next year, reflecting the weak housing market.

As a result, the Federal Reserve Board will cut interest rates to stimulate business, says Edward Leamer, director of the UCLA Anderson Forecast. Leamer says he sees the Federal Funds rate falling to 4.5 percent by the fourth quarter of next year.

Leamer also thinks housing starts will bottom out at an annual rate of 1.4 million in the second quarter of next year. As builders seek to sell inventory, new-home prices will fall to a low in the third quarter of 2007, down 10 percent from current levels, he says.

Prices for existing homes also will "nudge down a bit," he adds, noting the housing market downturn will hurt home builders, construction workers, real estate practitioners, and bankers, but will not be so severe as to force a recession.