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Freddie Mac sees optimistic '06
Economic growth should rebound strongly in the first half of 2006, the mortgage finance giant said.

NEW YORK (CNNMoney.com) - Economic growth should snap back strongly in the first half of 2006 to above 4 percent, according to a report Wednesday.

Government spending, specifically on defense and hurricane reconstruction, strong capital spending, a pickup in exports (as domestic production ramps up along the Gulf coast) and renewed consumption spending will all contribute to the rebound in growth, according to Freddie Mac's February 2006 economic outlook report.

Monetary policy will also help spur economic growth during the first half of this year, the report said.

If the Federal Open Market Committee boosts the federal funds target by 0.25 percent to 4.75 percent on March 28, as many analysts expect, that will translate into increases in other short-term rates, including those on consumer credit, home-equity lines-of-credit and adjustable-rate mortgages (ARMs), Freddie Mac said.

The mortgage finance giant also cautioned that a relatively flat Treasury yield curve is likely to remain for most of 2006 and the mortgage "yield curve" in the primary market will likely flatten a bit further.

As of February 2, the average interest rate on a 30-year fixed-rate mortgage was 6.23 percent, while the initial rate on a 1-year ARM was 5.33 percent, Freddie Mac said.

Borrowers who do refinance will do so to avoid a payment hike on an existing ARM, or to "cash-out" some home equity, according to the report.


Meanwhile, mortgage rates jumped last week, click here for more. Top of page

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