U.S. home sales may drop to a 6-year low

MCLEAN, Va., July 9 (UPI) -- U.S. home sales will drop to their lowest level in six years as mortgage rates and foreclosures increase, U.S. mortgage buyer Freddie Mac forecast Monday.

"Several risks -- the elevated levels of homes for sale, recent increases in mortgage rates and rising foreclosures of subprime borrowers -- point to continued weakness in the months ahead," Freddie Mac Chief Economist Frank Nothaft said in the forecast. The No. 2 U.S. mortgage buyer after Fannie Mae said it expected 6.28 million new and previously owned U.S. homes would be sold this year, down 6.7 percent from 2006.

Thirty-year fixed-rate mortgages will rise to an average will rise to 6.7 percent this quarter, 0.5 percent higher than the year's first three months, Freddie Mac, of McLean, Va., forecast.

Higher mortgage rates will likely lower home prices and sales and construction activity, it said.

As a result, the average U.S. home-price appreciation will be 1 percent this year, down from the 1.5 percent it forecast last month.

The lender predicts mortgage originations will hit $2.75 trillion, down $40 billion from its previous $2.79 trillion estimate and 8.5 percent less than 2006's volume.