The nation's housing market will rebound somewhat from a poor winter, with mortgage interest rates likely to stabilize or decline slightly by the end of the year, the Federal National Mortgage Association said last week.
Even so, home sales for 1995 should come in behind last year's pace, by about 6 percent to 7 percent, Fannie Mae predicted.
And Maryland, in the bottom five states in the nation in job growth, will likely continue to lag behind the nation in home sales, according to David W. Berson, chief economist at Fannie Mae.
"It's really employment growth that drives the housing market locally," he said.
Fannie Mae gave its forecast for the this year's housing market in Washington Thursday.
Mr. Berson said that the Federal Reserve's succession of short-term rate increases last year -- an attempt to ward off inflation -- has cooled the economy to the point where further rate increases appear unlikely.
In fact, rates on 30-year, fixed mortgages -- which shot up nearly two percentage points last year -- have fallen from an average 9.25 percent in December to an average 8.37 percent last week.
"The spring home buying season is moving into full swing and not being held back in any substantial way by slowing economic growth," Mr. Berson said.
So far, in the Baltimore area, contract signings are down 6 percent and settled sales are down 21 percent for the first three months of the year.
Fannie Mae's economic outlook for the spring, typically the busiest home buying season, assumes that economic growth will remain in check for the rest of the year, at about 2 percent to 2.5 percent.
"If that [growth] is sustained, it will allow the housing market to move forward and will keep rates relatively low," Mr. Berson said.
Because of slower growth, the spread between rates on fixed and adjustable mortgages has narrowed, making adjustable loans less attractive. Adjustable mortgages typically have much lower starting rates than fixed loans.
As fixed rates increased last year, borrowers in record numbers had turned to adjustable rate loans. As of December, Mr. Berson said, adjustables accounted for more than half of all loan originations.
But the share of ARMs will plummet to one quarter of all mortgage lending by the end of the year, he predicted.
Borrowers who took advantage of low adjustable rates over the past couple years could find themselves paying now, he said. Rates on one-year ARMS have risen by about 1.5 percentage points, from their levels of a year ago.
"Homebuyers with ARMs will see a significant increase in their ARM payments," in some cases the maximum increase under a yearly cap and possibly a second increase in 1996, he said.
Many of those borrowers will choose to refinance their loans to fixed-rate mortgages.
A mini-spurt in refinancing should help boost mortgage lending, as should relatively affordable mortgage rates and housing, he said.
Still, overall originations should fall 18 percent for the year because of the slowdown in the first quarter of this year, totaling $615 billion for the year compared $750 billion last year.