Freddie Mac Chief: High-End Home Prices Likely to Dip

Prices for luxury homes in hot housing markets such as Boston's will likely decline over the next few years, the head of home mortgage buyer Freddie Mac (FRE) said Thursday.

But while appreciation should slow for more affordable homes, Chairman and Chief Executive Richard F. Syron told local business leaders, he expects no nationwide decline in home prices.

Syron said the recent spike in high-end housing prices in places such as metropolitan Boston, New York City and in California constitute a bubble that will soon burst.

He did not offer a specific forecast on how far prices in those markets could decline. But he said the drop could be big enough to affect the overall economy as owners of pricey homes see their property values decline and become reluctant to spend on other items, like cars.

"Even a modest downturn in housing would be felt throughout the economy," he said.

In Boston, "We have seen a bit of a bubble, particularly at the high end," Syron said in his breakfast speech to the Boston College Chief Executives' Club.

Across New England, the average home has risen 28 percent over the last two years — a level of appreciation that is not sustainable because only about a third of the increase can be attributed to factors such as income and population growth, he said.

Syron said he expects prices for the region's middle- and lower-priced homes will continue to appreciate annually, but at a slower rate than in recent years.

Economists have split over whether the rise in U.S. housing prices (search) can be sustained.

Syron said recent growth has caused home equity wealth to double in the past seven years, helping to lift the nation's economy out of a recession and sustain its recent modest growth.

"This has been the locomotive pulling the economy," he said.

Syron, who grew up in Boston and was president of the Federal Reserve Bank of Boston from 1989 to 1994, was named in December 2003 to head McLean, Va.-based Freddie Mac, a publicly traded, government-sponsored corporation that is the second-largest buyer of U.S. home mortgages, behind rival Fannie Mae (FNM).

The two firms were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street.

Syron took over at Freddie Mac when previous CEO Gregory Parseghian (search) was ousted after being implicated in accounting irregularities.

Accounting troubles at both Freddie Mac and Fannie Mae and rapid growth in their mortgage portfolios have recently drawn increasing congressional scrutiny and proposals to tighten regulatory oversight.

Syron said Thursday that Freddie Mac was open to such moves. But he cautioned that some proposals have been too far-reaching, and would harm the firms' ability to open the housing market to millions of low- and moderate-income buyers.

"If ever the country needed us to do all we can and provide a steadying influence, now is that time," he said.