Fannie Mae: Home Prices & Mortgage Originations to Decline in 2011

The fourth quarter was not arnstellar time for home sales according to Fannie Mae’s Housing Forecast forrnDecember.  While existing sales arernprojected to improve from 289,000 to 299,000, new home sales will drop fromrn151,000 to 125,000.  In the same quarterrnof 2009 only 76,000 new homes sold, but existing sales were much more robust,rntotaling 373,000.   The year overall will be a rather dismal one forrnhousing with total sales down 7 percent from the 2009 figure.  Still, the 4.7 million total sales expectedrnfor the year is an upgrade from Fannie Mae’s estimate of 4.5 million madernearlier in the year. </p

The home price picture is also downbeat.  The median price of a new home is projectedrnat $214,500 and an existing home at $167,400 at year’s end, a -0.07 change fromrnone year earlier when the median prices were $218,800 and $170,800 respectively.rn</p

“Despite risingrnmortgage rates, our forecast for home sales is stronger than the previousrnforecast, given our brighter economic growth and labor market outlook,”rnsaid Fannie Mae Chief Economist Doug Duncan. “We expect modest increasesrnin home sales, despite recent interest rate rises, due in part to modestrnadditional declines in home prices, and we expect people to take advantage ofrnaffordability as their employment and income outlook brightens.” </p

After a big drop in the firstrnquarter, mortgage originations have increased steadily through the year to arntotal of $450 billion this quarter compared to $421 billion one year ago.  It is refinancing, however, that is carryingrnthe market.  Purchase mortgages arernexpected to represent only 25 percent of originations this quarter. </p

Fannie Mae’s economists expectrnmatters to improve only slightly in 2011. rnSales of homes are projected to increase 4.9 percent over the year butrnprices of both new and existing homes will continue to slide to a median of $216,100rn(new) and $169,500 (existing.) rnOriginations will drop from a total of $1.53 trillion this year to 1.1rntrillion in 2011.  This decrease will bernattributable to a drop in refinancing which is expected to account for only 42rnpercent of the market.</p

Here is an excerpt from the release, “We have repeatedly mentioned that the strength of the rebound in homern sales will largely depend on improvement in the labor market. We expectrn total home sales to fall seven percent this year before rising by aboutrn five percent in 2011, slightly stronger than the three-percent gain expected in the previous forecast. Our projection for housing starts is little changed from the November forecast, with total starts rising in 2010 by about six percent from 2009’s record-low level, followed by an increase of about 18 percent in 2011.”</p

The Housing Forecast is part ofrnthe larger Economics and Mortgage Market Analysis issued monthly by FanniernMae.  The report upgrades domestic growth for 2011rnfrom 2.9 percent to 3.4 percent, expects improving labor market conditions, andrnanticipates that the housing recovery should gain momentum going into 2011rn”if the expected stronger labor market materializes.”  Still, unemployment, currently at 9.7rnpercent, is expected to remain at high levels for the next two years, averagingrn9.5 in 2011 and 8.6 in 2012.   </p

READ FANNIE’S ENTIRE OUTLOOK HERE

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