This article posted on the Real Estate Journal today talked about how the real estate slump could continue for a while.
The Mortgage Bankers Association predicts the housing recession will last until the end of the third quarter next year. And if confidence isn’t restored in the credit markets, the wait could extend until 2009, the group’s chief economist said.
In the meantime, the slowdown in housing has become a primary cause in the slowing of the national economy, said Doug Duncan, chief economist of the group.
“Tough times,” he said, after sharing the group’s loan production estimates during a briefing with reporters on Tuesday. Tough times indeed.
On Wednesday morning, Duncan is scheduled to deliver the MBA’s economic forecast to its members at the group’s annual convention. The forecast calls for home sales to bottom out in the third quarter of next year and for housing starts to hit their bottom slightly earlier, in the second quarter.
Existing-home sales for 2007 will total 5.72 million units, a 12% decline over 2006 sales, he said. Sales will decline another 10% in 2008, before picking up by 5% in 2009.
New-home sales will total 819,000 units in 2007, down by 22% compared with 2006. Sales will also decline an additional 10% next year. In 2009, sales should rise by 6%.
Home prices for new and existing homes will follow suit, with national median prices declining 2% this year and another 2% in 2008, before flattening in 2009, Duncan added.
“We have a ways to go in the housing recession. It is clearly a deep recession; at this point, we figure that will dissipate at the end of the third quarter,” he said.
Supply and demand
Local real-estate markets will vary, but overall there’s a great deal of housing inventory that needs to diminish before housing recovers, Duncan said.
“Anyway you look at it, there are massive supplies of homes that have to be worked off the marketplace before we return to an increase in activity, and certainly in terms of construction,” he said.
In fact, the publicly reported inventory numbers are likely underestimated, considering they don’t include contract cancellations for new homes or foreclosed properties that aren’t being marketed by a real estate agent, Duncan said.
On the demand side, there are also constraints, he added, as a restricted supply of credit and tightening lending standards curtail housing demand. Borrowers seeking nonconforming loans are especially facing tougher times getting a mortgage, including those who need jumbo loans, which exceed the conforming loan limit currently set at $417,000. Conforming loans are those that may be purchased by housing agencies Fannie Mae and Freddie Mac.
That said, borrowers of conforming loans shouldn’t see too many surprises in the near future: The last MBA estimate of mortgage rates clocked the interest rate on a 30-year fixed-rate mortgage at 6.4%, and the group predicts the rate will rise only slightly, to 6.6%, by early 2008.
As for the mortgage industry, the market conditions naturally amount to sharp declines in the volume of loans that can be made.
The group predicts that total mortgage production, including both purchase and refinance loans, will be $2.31 trillion in 2007, down 15% compared with 2006. Originations should decline another 18% next year. In 2009, they will drop an additional 6%, as purchase loans pick up but loans to refinance an existing mortgage decline.
Already, the industry has seen between 60,000 and 70,000 layoffs since housing markets in many areas turned south; by early next year, the number could reach 100,000 or more, Duncan said.
Overall economic growth will continue to slow through the rest of 2007, then should return to normal in the second half of 2008 and into 2009, according to the forecast. Also in the forecast: a quarter-point rate cut by the Fed, due to the spiking of energy prices, increasing of food costs and other stresses on household budgets, in addition to the decline of housing prices, Duncan said.
“We have not yet seen fully the impact of the credit shock to the U.S. and world economies,” Duncan said in a news release announcing the forecast, “and the severity of that impact will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle.”