As rates rise, home prices may slacken

U.S. home-price appreciation will slow as interest rates rise next year, according to Freddie Mac and Fannie Mae, the nation’s two biggest purchasers of mortgage loans. The slackening may hurt economic growth.

Home prices rose more than twice as fast as wages during the last three years. Personal incomes increased 9.3% since 2001, and prices for new and existing homes surged 19% over the same period, government data show.

Homeowners “should not expect double-digit price increases year after year,” said Frank Nothaft, chief economist at Freddie Mac, which is based in McLean, Va. “That’s just not going to happen.”

U.S. home-price growth probably will dip from 7.6% last year to 6.1% this year and 3.7% in 2005, said David Berson, economist at Fannie Mae. The average annual increase over the last 20 years is 4.4%, according to the National Assn. of Realtors.