By Inman News, Wednesday, October 14, 2009.
The Mortgage Bankers Association projects double-digit growth in sales of both new and existing homes in 2010, even though the group expects unemployment will continue to climb and won’t peak until the middle of the year.
The MBA expects sales of existing homes to rebound 11.2 percent next year, to 5.57 million, and for new-home sales to bounce back 21 percent from this year’s projected “very low levels” of 398,000.
Home-price declines, when viewed at the national level, should tail off by early 2010, the group said. But the situation will vary by state and property type, the MBA warned, with the greatest demand for entry-level homes.
After falling 13 percent from 2008 to 2009, to $172,200, the median existing-home price is expected to remain essentially flat in 2010 before posting a 2.6 percent gain in 2011 and rising another 4.1 percent in 2012, the MBA said.
Unemployment numbers are “stark,” and the weakness in labor markets poses a “major threat” to the outlook for consumer spending — a key factor in the timing of an economic recovery, the MBA said in releasing its latest economic and mortgage market forecasts.
It’s likely that job losses during the recession already total more than 8 million, and that 15 million Americans are now out of work, the MBA said, citing numbers compiled by the Bureau of Labor Statistics. The median length of unemployment has risen to 17.3 weeks, five weeks longer than the previous high during the downturn of 1982-83, the MBA said.
The report said the “most disturbing sign of weakness” was September’s employment report, which showed payroll jobs falling by 263,000, more than in August. The unemployment rate hit 9.8 percent in September, and the increase would have been much larger if not for a decline in the number of people looking for work.
The MBA forecasts that unemployment won’t peak until the second quarter of 2010, at 10.2 percent, before declining slowly through 2011.
But financial markets are continuing to heal, helping drive a $2 trillion increase in household wealth during the second quarter. Stabilization of home prices and a continued rebound in stock markets drove a similar increase in the third quarter, the group said. Productivity is up, and the need to replenish inventories should also drive growth next year.
Some of the numbers that have been released in the past month raise questions about the underlying strength of a recovery. Not only were job losses greater than expected, but sales of previously owned homes fell unexpectedly in August. If the tax credit for first-time homebuyers is not extended, “further reductions in home sales might occur in the months just ahead,” the MBA said.
There’s still reason to hope that any setbacks in economic growth in the final quarter of 2009 will be temporary “and that a more robust pace of expansion will develop early next year,” the MBA said in the group’s monthly economic commentary for October.
Most of the impact of the $787 billion federal stimulus package approved this year won’t be felt until 2010 — especially for construction programs.
But downside risks are increasing, and a shock to the system like a sharp rise in oil prices “could pose a major threat to a still fragile recovery.”
Interest rates are perhaps the biggest unknown, said Jay Brinkmann, the MBA’s chief economist, in a press release accompanying the release of the group’s latest economic and mortgage market forecasts.
High unemployment, excess economic capacity and the absence of inflation should hold interest rates down, Brinkmann said. But the Federal Reserve’s purchases of mortgage-backed securities are scheduled to wind down at the end of March. That program — in which the government is buying up to $1.25 trillion in MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae — has been credited with helping keep mortgage rates near historic lows this year.
The Fed had originally planned to wind up those purchases by the end of this year, but last month announced it would stretch them out over an additional three months because nearly half of the program’s capacity hadn’t been used.
“No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasurys,” Brinkmann said.
In other words, while rates on Treasurys may stay low, the difference, or “spread” between mortgage rates and interest rates on government bonds could grow — one reason the Fed’s MBS purchase program was undertaken in the first place.
The Mortgage Bankers Association is forecasting that rates for 30-year fixed-rate mortgages will climb from 5.1 percent this year to 5.4 percent in 2010, 6 percent in 2011, and 6.3 percent in 2012.
The forecast assumes 10-year Treasury yields will also climb from 3.2 percent to 4.6 percent over the same period, and that the spread between Treasurys and 30-year fixed-rate mortgages will actually narrow from about 190 basis points today to 170 basis points by 2012. A basis point is one-hundredth of a percentage point.
Although mortgage rates would still be low by historical standards, this year’s refinancing boom is expected to taper off as mortgage rates increase. Refinancings, which grew from $777 billion in 2008 to a projected $1.245 trillion this year, are expected to fall back to $745 billion next year and $589 billion in 2011.
Originations of purchase mortgages are expected to rise by 12 percent in 2010, to $803 billion, and reach $980 billion by 2012.
The MBA expects that the drop in refinancings will outweigh the increase in purchase originations, and that total mortgage originations will decline 21 percent in 2010, to $1.56 trillion. Refinancings are expected to account for 48 percent of mortgage originations next year and 40 percent in 2011, down from a projected 63 percent this year.
In commentary accompanying the group’s mortgage market forecast, the MBA characterized the current housing market recovery as “modest,” and warned that the group “cannot be confident that home prices have stabilized at this point.”
Inventories of existing homes have declined about 16 percent from a year ago, equaling about 8.5 months of supply in August — the lowest level since April 2007.
But rising foreclosures continue to add to inventories, and many owners and investors who have been holding properties off the market — homes often referred to as “shadow inventory” — may list them for sale if the market recovers.
While existing-home sales have stabilized, home-price declines continued to be sizable, the MBA said. The median resale home price fell 12.6 percent in August from a year ago, and the median price for new homes was down 11.7 percent year-over-year. The median price for new-home sales has declined in 11 of the past 12 months, with the lone exception a 0.83 percent increase in December, the group noted.
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