Search

Recovery Will Continue Despite Contracting Mortgage Industry – Fannie Mae

by devteam September 17th, 2013 | Share

Fannie Mae’s senior economists saidrntoday that anticipated declines in refinancernoriginations suggest that mortgage industry employment, which has trended uprnsince hitting bottom early next year will likely pull back in coming months.rnThis will be just one offshoot of the pain the housing industry isrnbeginning to feel as interest rates rise. rn</p

Writing in the company’s SeptemberrnEconomic Forecast, Doug Duncan, Brian Hughes-Cromwick, and Mark Palim said that,rnas early as its July meeting the Federal Open Market Committee (FOMC) expressedrnconcern that rate hikes could hurt housing. rnSince then rates have continued to move even higher and they willrncontinue to drift upward for the next year with the yield on 30-year fixed-raternmortgages (FRM) trending up tornapproximately 5.3 percent by the end of next year.  The early September rate of slightly over 4.5rnpercent is already about 120 basis points over the recent trough in early May. </p

The economistsrnsaid rising rates are already reflected in recent housing indicators with July single-familyrnhousing starts trailing those in February by 5 percent.  Existing home sales made a solid gain in July to thernstrongest pace since late 2009 but this is a lagging indicator and pending homernsales, a leading one, fell moderately for a second month suggesting an upcomingrndecrease in existing sales. . Purchase mortgage applications-another leading indicator of home sales-have declined roughly 15 percent from theirrnpeak in early May. So far, the drop inrnpurchase mortgage applications has been much more severernthan that forrnpending home sales, but given the level of cash-only purchases the relationship between mortgage applicationsrnand home sales is less tight than it hasrnbeen in the past.</p

</p

New home sales also plunged in July, the largest droprnsince the homebuyer tax credit ended in 2010. rnNew home sales, like pending sales are based on contract signings andrnare thus are a timelier indicator than existing home sales.  Earlier months’ data was also revised down inrnJuly and revised down sharply.</p

</p

Still home builders remain optimistic.  The National Association of HomernBuilders/Wells Fargo Housing Market Index rose for the fourth consecutive monthrnin August to a level last seen eight years ago. rnPerhaps the drop in new home sales will be short lived, the economistsrnsay, or perhaps builders will soon be changing their minds.  </p

The higher rates do not yet seem to have affected homernprices.  They continue to show solidrnmonthly gains although those have moderated since the first of the year.  Limitedrninventory has been responsible for much of what the authors call unsustainable homernprice growth, however these conditions have been improving amid reduced demandrnand they predict further moderation in home price gains in comingrnmonths.</p

Whilernaffordability is still historically high, it is becoming an issue for some potential homebuyers, especiallyrnfirst-timers.  Between the spike inrninterest rates, rising home prices, and anemic income growth many are no longer able to qualify a mortgage.  Thernaffordability index for first-time homebuyers fell sharplyrnin the second quarter and willrnlikely post another sizable drop in the currentrnquarter.</p

</p

Householdrnformation among young persons is being held back by the weak labor market,rntight lending standards, and student debt burdens.  A recent Census Bureau report shows that thernshare of post-college age individuals still living with their parents continuedrnto edge higher to 13.6 percent in 2012.</p

Lending standards have gradually easedrnover the last years and the economists expect that gradual trend to continue,rnespecially after the revision of the new Qualified Residential Mortgage (QRM)rnrule which eliminates the earlier high down payment requirements. </p

</p

The three economists conclude that,rnwhile the spike in interest rates has dampened a number of indicators ofrnhousing recovery such as consumer sentiment and mortgage applications, thernrecovery will still continue in a solid and sustained manner.  Both new and existing home sales have experienced strong year-to-date gainsrnthrough the end of July, rising 22 percentrnand 12 percent, respectively,rnfrom last year’s levels and arernforecast to rise further through the end of the year although at a slowerrnpace.  Fannie Mae downgraded its 2013 projectionsrnfor new home sales from 481,000 to 440,000 but has held to its earlier forecastrnfor an 8.5 percent gain in existingrnhome sales</p

Duncan,rnHughes-Cromwick, and Palim also say that, given the 60 percent decline inrnrefinancing applications since early May they believe the refinancing boom hasrnpeaked and that mortgage activity is now shifting to purchase activity.  However their predictions for mortgagernactivity are largely unchanged at a total for 2013 of about $1.75 trillion,rndown 14 percent from 2012.  Refinancingrnwill drop to a 64 percent share from 73 percent for the entire year but by thernfourth quarter purchase originations will have more than a 50 percentrnshare.  Adjustable-rate mortgages are expectedrnto increase in popularity as fixed rates rise.</p

Finally Fannie Mae’srneconomists expect the deleveraging in mortgage debt to end soon.  Total single-family mortgage debt is forecastrnto rise modestly in 2013 after five straight years of annual drops.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs
Share

Comments

Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...