Mortgage Bankers Association out with 2008 forecast
The Mortgage Bankers Association (MBA) is out with its 2008 forecast.
I like their chief economist, Doug Duncan. His guess is as good as anyone’s.
Highlights from the MBA’s report: Duncan expects another reduction in the Fed Funds rate, at the end of this month; he expects the economy to turn positive toward the third quarter, 2008; and, most importantly, he thinks the US may still escape the clutches of a recession.
“The 30-year fixed-rate mortgage yield should trend up only modestly higher over the second half of the year, reaching 6.2 percent by the fourth quarter and edging up just slightly through 2009. Thus, interest rates will still be quite low by historical standards,” said Duncan.
Following are the key points of the latest MBA forecast:
• We expect housing starts and home sales to continue to trend down and reach bottom around the end of the 3rd quarter 2008.
• Total existing home sales for 2008 will decline by about 13 percent from 2007 to 4.94 million units. Sales will pick up by about four percent in 2009.
• New home sales will decline by about 15 percent in 2008 from 2007 to 666,000 units. We expect sales to increase about seven percent in 2009.
• Median home prices for new and existing homes are expected to decline this year, with nominal median prices falling about two percent. Prices should increase by between one and two percent in 2009.
• Residential purchase mortgage originations will decline about 18 percent in 2008 to $955 billion from a projected $1.16 trillion in 2007. Given a recovery in sales and prices in 2009, purchase originations should be up by five percent to one trillion in 2009.
• The yield on 10-year Treasuries — the benchmark for fixed rate mortgage yields — are projected to decline in the current quarter as the Federal Reserve is expected to continue with its easing. However, we do not expect a large pickup in refi activity as we would normally do for several reasons.
First, lending standards have been tightened significantly.
Second, the spread between the 10-year Treasury yield and conforming mortgage rates as well as the spread between conforming mortgage rates and jumbo rates has widened.
Third, home prices have declined in many areas.
These factors have combined to discourage some refi activity, especially in areas with relatively high share of jumbo loans and falling home prices. Thus we project that refinance originations will decline about 14 percent to $1.01 trillion in 2008 from a projected $1.17 trillion in 2007. Refi activity will decline by another 13 percent to $883 billion in 2009 from 2008.
• Total mortgage production will be down 16 percent to $1.96 trillion this year from a projected $2.34 trillion in 2007. This would mark the first time since 2000 that total mortgage originations fall below $2 trillion.
• Total originations should see another drop of four percent in 2009 to $1.88 trillion.
Source: Mortgage Bankers Association
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