Despite this year's surge in mortgage rates, and a steady rise in housing prices, sales of new and previously owned homes is expected to top 6 million this year and will likely hold steady in 2000, according to the predictions of Freddie Mac's top economist.

Robert Van Order, Freddie Mac's chief economist, projects that home sales will advance 6% to 6.01 million units from the year-ago figure of 5.67 million, marking the fourth consecutive home sales record. In 1998, home sales jumped 13%, with both new and existing home sales setting records.

The expected rise in sales comes as 30-year mortgage rates remain above 7% after spending most of 1998 hovering in the 6.9% range. Van Order predicts that mortgage rates will remain in the 7.3% range for the rest of the year, climbing to around 7.6% in 2000. Rates closed this week at 7.52%.

That means that the average borrower on a 30-year $100,000 loan will pay $685.57 in principal and interest each month, up from $658.80 a month last year, when rates were around 6.9%.

What's more, that home sales increase will come also as home prices across the U.S. rise an average of 5%, even as overall inflation advances 2.3% this year, and 2.5% in 2000 well ahead of 1998's inflation rate of 1.6%.

Yet despite the rise in rates and prices, Van Order maintains that the conditions remain favorable for most consumers considering buying a home, particularly given that the economy is churning along and inflation remains low.

In addition to robust sales, Van Order predicts that construction starts will likewise be strong over the next 18 months. According to his projections, 1999 single-family construction starts will reach their highest level since 1978, while starts on multifamily dwellings could be the highest in a decade.

That rise in sales may not necessarily translate into a rise in mortgages, however. Van Order expects mortgage origination in 1999 to decline 10% to $1.3 trillion, which he pointed out still represents the second-highest level ever. - JS

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