October 22, 2008
Things may look bleak now, but bankers see some light at the end of
the tunnel. The Mortgage Bankers Association is forecasting that the
economy will contract in the second half of 2008 and continue to do so
through the first half of 2009 before a modest recovery.
In its latest forecast, MBA also is predicting growth will pick up strongly by the end of 2009 and over the course of 2010. In addition, MBA says it expects total residential mortgage production in 2009 to be $1.67 trillion, down from an expected $1.86 trillion in 2008 and $2.3 trillion in 2007.
"A recession appears to be underway, as evidenced in rising unemployment, contracting manufacturing activity and declining inflation-adjusted consumption spending. Credit markets continue to be dysfunctional and the recent intensification of the credit crunch is hitting an already weakened economy," said Jay Brinkmann, MBA chief economist and senior vice president for research and economics.
"We expect residential investment to decline further through the first half of 2009, due to the excess supply of houses and weakened demand from the recession."MBA also expects unemployment to climb with the jobless rate likely hitting 7.7 percent by the end of next year and remaining high through most of 2010 before heading down again.
"The rates on fixed-rate mortgages have picked up recently to near 6.5 percent in response to policymakers' programs for banks re-capitalization and insurance of financial institutions," said Brinkmann. "We expect long-term rates to decline from their current levels as massive liquidity injections by central banks around the world and other policy actions work through the system and demand increases for long dated debt."
Key points of the latest MBA forecast include:
• Real GDP growth will average about 0.3 percent in 2008, 0.1 percent in 2009 and 3.4 percent in 2010. However, growth will be negative in the 4th quarter of 2008 and the first two quarters of 2009.
The unemployment rate will increase from the current level of 6.1 percent to about 6.5 percent by the end of 2008 and steadily increase to about 7.8 percent by the first part of 2010 before declining by late 2010.• Fixed mortgage rates are expected to average about six percent in the fourth quarter and remain slightly lower through the end of 2009 before rising modestly in 2010.
• Total existing home sales for 2008 will end up about 13 percent below those for 2007. Existing home sales are projected to rebound slightly in 2009, increasing by about three percent. Sales should increase by about six percent in 2010.
• New home sales for 2008 will be down by about 36 percent relative to 2007. Sales are projected to bottom in the second half of 2009 and rebound modestly in the second half. For all of 2009, new home sales should post a decline of about 12 percent. Sales should increase by about 25 percent in 2010.
• National average home price declines should continue through most of 2009, with states like California and Florida continuing to drive the national averages, but with a number of other states showing more modest decreases. Median home prices for new and existing homes are expected to be down about six to seven percent for 2008. Prices should decline at a more modest rate of about three to four percent in 2009 before rising slightly in 2010.
