Economic and Mortgage Market Developments (Fannie Mae)
Housing market. The latest housing data were mixed, with existing home sales falling and new home sales rising in September (though prior estimates for new home sales in June, July and August were revised downward). We project that the combination of below-trend economic growth, low affordability, real estate investors leaving for greener pastures, and dislocations in the mortgage market will continue to slow housing starts and sales for the rest of this year and into 2008. Total home sales should decline by 14 percent in 2007 (from the annual level of sales recorded in 2006) and by another 12 percent in 2008. Single-family housing starts are projected to fall by 28 percent this year and by 14 percent next year. The housing market should stabilize in the second half of next year, with sustained gains in the level of sales activity beginning in 2009.
House prices. The large number of unsold homes on the market is putting downward pressure on house prices. This price weakness is likely to extend into 2009 until a combination of a projected rise in home sales and decline in unsold inventories leads to perhaps a modest gain in prices by 2010.
Mortgage market. The projected decline in home sales and prices will lead to a decline in purchase originations of 14 percent in 2007 and 19 percent in 2008 (to $1.2 and $1.0 trillion, respectively). Refinance originations are projected to slip only modestly to $1.2 trillion in 2007 and $1.1 trillion in 2008 (from an estimated $1.3 trillion in 2006) as many borrowers with upwardly-adjusting ARMs continue to refinance into new lower-rate loans. The ARM share (of the number of mortgage applications) is expected to remain near its current level of 14-15 percent for the next several quarters. Growth in single-family mortgage debt outstanding is projected to slow to 6.3 percent in 2007 and to between 4-5 percent for the next several years.
Molly R. Boesel and David Kogut
Economics and Mortgage
Housing market. The latest housing data were mixed, with existing home sales falling and new home sales rising in September (though prior estimates for new home sales in June, July and August were revised downward). We project that the combination of below-trend economic growth, low affordability, real estate investors leaving for greener pastures, and dislocations in the mortgage market will continue to slow housing starts and sales for the rest of this year and into 2008. Total home sales should decline by 14 percent in 2007 (from the annual level of sales recorded in 2006) and by another 12 percent in 2008. Single-family housing starts are projected to fall by 28 percent this year and by 14 percent next year. The housing market should stabilize in the second half of next year, with sustained gains in the level of sales activity beginning in 2009.
House prices. The large number of unsold homes on the market is putting downward pressure on house prices. This price weakness is likely to extend into 2009 until a combination of a projected rise in home sales and decline in unsold inventories leads to perhaps a modest gain in prices by 2010.
Mortgage market. The projected decline in home sales and prices will lead to a decline in purchase originations of 14 percent in 2007 and 19 percent in 2008 (to $1.2 and $1.0 trillion, respectively). Refinance originations are projected to slip only modestly to $1.2 trillion in 2007 and $1.1 trillion in 2008 (from an estimated $1.3 trillion in 2006) as many borrowers with upwardly-adjusting ARMs continue to refinance into new lower-rate loans. The ARM share (of the number of mortgage applications) is expected to remain near its current level of 14-15 percent for the next several quarters. Growth in single-family mortgage debt outstanding is projected to slow to 6.3 percent in 2007 and to between 4-5 percent for the next several years.
Molly R. Boesel and David Kogut
Economics and Mortgage
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