July 25, 2011 (Chris Moore)
Fannie Mae says that a tepid housing recovery that has yet to make any contribution to economic growth should continue for the remaining of 2011, with declines in home prices and mortgage originations leading to an overall downgrade in the housing market.
According to Fannie Mae’s July Housing Forecast, although housing is on a slow track, some positive signs are emerging, but not yet at a level that can contribute to an economic expansion. Typically at this point in an economic recovery, housing has generally added significant growth, usually about one point to gross domestic product (GDP). However, since the end of the recession in 2009, the housing market has yet to make a contribution.
Data for home sales continues to be mixed. Existing home sales in May fell to their lowest level since November of 2010, however, pending home sales jumped up 8.2 percent in May after falling by more than that the previous month. This could partially explain May’s poor existing home sales report and could indicate a rebound in existing home sales may be coming in August.
New home sales remain at depressed levels and dropped in May, following two months of gains. Housing starts climbed in May, but that only partially offset the drop from the previous month. Building permits for single-family homes have been relatively flat, but permits for multi-family dwellings have been elevated for the last two months.
The percentage of distressed property sales has been lower, relieving pressure on home prices for the time being. However, Fannie Mae doesn’t think home prices have bottomed out yet, as the slight seasonal improvements we’ve seen recently will likely fade by the end of the year.
New home market supply-demand conditions have improved with the inventory falling to a 6.2 months supply of homes, matching its long term average.
Existing home inventory continues to have an excess supply with over nine months worth of inventory currently on the market. Foreclosure inventories also remain elevated as a result of the “robo-signing” controversy which has halted or slowed down the foreclosure process in some states. This has resulted in prolonging the time it takes to absorb these properties, which inevitably will continue delaying the recovery of the housing market.
Mortgage rates are expected to move up slightly from their current levels to about 4.8 percent by the end of the year.
Single-family housing starts are expected to decline about seven percent from last year, while new home sales are expected to remain flat. Existing home sales are expected to rise about four percent from 2010 levels with the multi-family market expected to remain at elevated levels. Multi-family housing starts are expected to be 30 percent higher than 2010.
Mortgage originations are projected to decline to $1.07 trillion in 2011 from an estimated $1.51 trillion in 2010. Refinance activity is expected to account for about 54 percent of that share.
Tags: Fannie Mae, July Housing Report, housing recovery, positive signs, existing home sales, housing starts, new home sales, multi-family housing