Rocky Road to Housing Recovery? Written by Richard Shreve, Mortgage Market Weekly
As most people in the real estate biz know, the spring season is normally something to look forward to. This is the season where homebuyers typically come out in droves and home sales pick up.
However, with all of the financial strife and adversity of 2009, the year of 2010 may be a different animal. Particularly in markets that were/are being hit the hardest by unemployment.
On top of the U.S. current economic situation, further complicating matters down the road are three potentially destabilizing events that are expected to occur during a very strict time frame during the spring buying season:
First, as has been reported, the Federal Reserve has stated that they will wind down (end) the $1.25 trillion program that has been keeping mortgage rates artificially low.
Second, the Federal Housing Administration's (FHA) announcement that it plans to tighten underwriting standards may take effect take effect as soon as April.
And third, Congress will most likely allow the current expanded homebuyer tax credit to expire (deadlines are mentioned above).
On top of these facts, is the growing concern of every day 'Main Street', and it's anticipated 'bounce back'. Economists and analysts are left with an abnormally large amount of guesswork in predicting what impact these changes will have when drawing up their forecasts for 2010, as the U.S. and its citizens has never faced an economic situation quite like this one.
Many experts are predicting that unemployment will not hit its peak until next year, and it's almost certain mortgage rates will go up from current lows. Couple this fact with the fact that housing was hammered so badly, and for so long, that most forecasters do not know whether we have hit the low of the trough, or whether there will be further housing depreciation, as 'shadow inventory' will eventually have to hit the 'active' market.
When releasing their latest economic forecast, it was noted that the MBA (Mortgage Bankers Association) is projecting that unemployment will stay "stubbornly high for the next several years." It predicts that the unemployment rate, which stood at 4.9 percent in the first three months of 2008, and 8.1 percent in the first quarter of 2009, will hit its peak at 10.3 percent in the first quarter of 2010.
Unemployment is expected to stay in the double digits for all of 2010, gradually declining to 9 percent by the final quarter of 2011.
I will note here that in the past economic recoveries that the U.S. has faced, job growth has been fueled by home construction. But MBA economists, in their mortgage finance forecast, are projecting only a modest rebound in total housing starts.
The economists went on to state that it will be two years before housing starts surpass the 906,000 mark set in 2008 -- a year that had represented a low point in U.S. Census Bureau records dating back to 1959. According to Census Bureau statistics, housing starts hit a record-high 2.07 million in 2005, and have declined in every year since.
The MBA projects housing starts will hit a new low of 557,000 for 2009 statistics, before rebounding to 743,000 in 2010 and 1.025 million in 201-- which thankfully is not so bad, in and of itself, if true.
This prediction appears to be in-line with predictions by Fannie Mae, which is forecasting 755,000 housing starts in 2010, and the outlook from the National Association of Realtors (NAR), which expects 746,000 housing starts.
The National Association of Home Builders is even more pessimistic about 2010, projecting 695,000 total housing starts, although NAHB is forecasting 1.04 million starts in 2011.
I will note here that Fannie Mae economists also expect a slight deterioration in median home prices next year, with the median price for resale homes falling 1.7 percent, to $170,900, and the median price of new homes also falling 1.7 percent, to $209,200. Those declines would be far smaller than the 12.2 percent hit Fannie Mae says median resale home prices took from 2008 and 2009, and the 8.3 percent slide in median new home prices.
Adding to the problem of predicting what the 2010 housing market will bring is the Obama administrations recent announcement that it plans to tighten underwriting standards on FHA-backed loans in 2010 (as mentioned above), but was not factored into Fannie Mae's forecast, "but that can throw a wrench in what's happening, because they are a significant force in the purchase market."
Housing Secretary Shaun Donovan told lawmakers this month, that FHA will increase the amount of upfront cash homebuyers must bring to the table, raise minimum FICO scores for new borrowers, and reduce maximum seller concessions from 6 percent to 3 percent. Also, HUD is considering raising FHA mortgage insurance premiums, Donovan said.
If HUD rolls out a formal proposal at the end of January, as Federal Housing Commissioner David Stevens has indicated will happen, the new standards could take effect as early as April of 2010.
It should be noted (as most of you may know), that FHA-backed loans are virtually the only source of funding for low-downpayment borrowers and the program mostly utilized by first-time homebuyers.
All of this being said, it will undoubtedly be an interesting real estate world in 2010 -- as the proposed changes that I mentioned above will, by no means, be the only changes to the real estate and mortgage lending industry.
I, personally, am looking forward to the fact that we will likely have more stability (statistics, federal and state guidelines, etc.) in our respective industries than we had in 2009, which should enable all of us to at least focus on what we do best.
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