Fannie: 'Recovery Is Here'; Inman News (subscription required)
11% growth in home sales forecast for 2010
The deepest and longest recession since the Great Depression appears to be over, Fannie Mae economists say, projecting sales of new and existing homes will jump 11 percent next year and that national home prices will stabilize, remaining essentially flat.
The mortgage guarantor's monthly housing forecast projects 5.96 million home sales in 2010, with sales of existing homes growing by 10 percent, to 5.46 million. New-home sales are expected to rebound even more sharply in 2010, growing by 24 percent to 498,000.
"It appears that the economic recovery is here," Fannie Mae economists Doug Duncan and Orawin Velz said in a report summarizing their economic and mortgage forecasts, although they expect it will be weak compared to previous recoveries from deep recessions.
Real gross domestic product (GDP) grew at a 3.5 percent annualized pace in the third quarter, following five declines in the prior six quarters, they noted, but growth is likely to moderate in the final three months of the year before strengthening in late 2010.
The first-time homebuyer tax credit helped boost third-quarter home sales, which also led to a jump in real estate brokerage commissions, Duncan and Velz said in their report.
A 23.3 increase in the annualized rate of residential investment (home sales) in the third quarter was the largest in more than two decades, although it came from "extremely depressed" levels, the report said. Real residential investment was contributing to economic growth again, adding 0.5 percentage points to third-quarter GDP growth.
But a survey of consumers in October showed the percentage of respondents indicating that "jobs are hard to get" hitting a new high for the downturn. In their economic forecast, Duncan and Velz said they expect the unemployment rate to average 10 percent next year, up from 9.3 percent this year and 4.6 percent in 2007.
Their housing forecast projects that housing starts will surge by 35 percent next year, from a recent historic low of 462,000 projected starts in 2009 to 624,000 next year.
Fannie Mae expects national home prices will stabilize next year, with the median resale home price remaining essentially unchanged at $170,800. That's a 0.2 percent decline from 2009 and a 22 percent decline from 2007.
The median price of a new home is expected to fall by nearly 2 percent from this year to next, to $208,400 -- a 16 percent decline from 2007.
Although new-home sales fell in September after five consecutive months of increases, the months' supply of new homes was unchanged at 7.5 months. New-home stocks have fallen steadily since May 2007, and are at the lowest levels since 1982, Duncan and Velz said in their analysis.
Other data indicate "a substantial excess supply of housing." The homeowner vacancy rate grew to 2.6 percent during the third quarter -- still below the 2.9 percent level reached at the end of 2008 but well above the long-term average of 1.7 percent.
At 11.1 percent, the third-quarter rental vacancy rate was the highest since record-keeping began in 1965. That has depressed rents, which along with stagnating wages relieves pressure on the consumer price index, and that should in turn allow the Federal Reserve to keep short-term interest rates on hold until late 2010, the Fannie Mae economists project.
Mortgage originations are expected to plummet 29 percent next year from 2009 levels, to $1.34 billion, as mortgage rates rise and this year's refinancing boom comes to an end.
Fannie Mae projects $1.3 billion in mortgages will be refinanced this year, accounting for two-thirds of mortgage originations by dollar volume. Only about half the volume in refinancings is expected next year, as many who are eligible to refinance will have already done so. Also, interest rates for 30-year fixed-rate conforming mortgages are expected to rise from an average 5.07 percent this year to 5.42 percent in 2010.
Rates on 30-year fixed-rate mortgages hit a record low of 4.78 percent in April, largely due to the Federal Reserve's purchases of up to $1.25 trillion in mortgage-backed securities in a temporary program that's scheduled to end in March 2010.
With purchase-loan volume expected to climb 13 percent in 2010, to $733 billion, refinancings will make up less than half of the total dollar volume of mortgage loans.
Applications for adjustable-rate mortgage (ARM) loans are expected to account for 8 percent of loan requests next year, up from 5 percent this year but significantly less than the 20 percent market share ARMs caputured in 2007, when the financial crisis began.
