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What does 2010 hold in store for the Housing Market?

Dennis Norman

In a just a few days we will say goodbye to 2009; a year that has been brutal to the housing market. So as the new year comes in, what will 2010 hold in store for the housing market?

To answer this question I turned to the housing forecast just released by Fannie Mae to see what their economists were predicting. Here are the highlights from the report, showing actual numbers for the 3rd quarter of this year as well as Fannie Mae’s projection for 4th quarter of this year as well as 4th quarter of 2010:

  • New Home Starts (seasonally adjusted annual rate)
    • 3rd quarter actual- 499,000
    • 4th quarter 09 projection – 502,000 (+0.06 % from 3rd quarter)
    • 4th quarter 10 projection – 650,000 ( +29.4% from the year before)
  • New Home Sales (seasonally adjusted annual rate)
    • 3rd quarter actual- 413,000
    • 4th quarter 09 projection – 442,000 (+7.02 % from 3rd quarter)
    • 4th quarter 10 projection – 510,000 ( +15.38% from the year before)
  • Existing Home Sales (seasonally adjusted annual rate)
    • 3rd quarter actual- 5,290,000
    • 4th quarter 09 projection – 5,623,000 (+6.29 % from 3rd quarter)
    • 4th quarter 10 projection – 5,492,000 ( -2.32% from the year before)
  • Median Home Prices-New Homes
    • 3rd quarter actual- $210,400
    • 4th quarter 09 projection – $214,600 (+2.0 % from 3rd quarter)
    • 4th quarter 10 projection – $211,400 (-1.5% from the year before)
  • Median Home Prices-Existing Homes
    • 3rd quarter actual- $178,300
    • 4th quarter 09 projection – $175,200 (-1.73 % from 3rd quarter)
    • 4th quarter 10 projection – $172,600 (-1.48% from the year before)
  • Mortgage Interest Rates (fixed-rate mortgage)
    • 3rd quarter actual- 5.16 percent
    • 4th quarter 09 projection – 4.88 percent
    • 4th quarter 10 projection – 5.32 percent

So there you have it. A somewhat encouraging forecast for the housing industry for next year. A prediction of increased new home sales, a little bump in existing home sales at the end of this year (from the homebuyer tax credit no doubt) and then a slight drop in sales next year from that rate, a slight drop in home prices in the next year and interest rates that are still attractive. If all this pans out 2010 will no doubt end up being a kinder year to the housing industry than 2009 was.

Ah, but wait…I know what you’re thinking…same thing as me. What do these guys know? After all wasn’t it Fannie Mae that had accounting issues, management problems and has been blamed by some to be a contributor to the housing bust? Well, lets take a look at their housing forecast from a year ago and how accurate their projections were then. For the sake of this comparison we will compare their forecast for the 3rd quarter of 2009 with the actual numbers from above:

  • New Home Starts (seasonally adjusted annual rate)
  • 3rd quarter 2009 actual- 499,000
  • 3rd quarter forecast – 526,000 (over by 5.41%)
  • New Home Sales (seasonally adjusted annual rate)
  • 3rd quarter2009 actual- 413,000
  • 3rd quarter forecast – 472,000 (over by 14.29%)
  • Existing Home Sales (seasonally adjusted annual rate)
  • 3rd quarter 2009 actual- 5,290,000
  • 3rd quarter forecast – 5,003,000 (under by 5.42%)
  • Median Home Prices-New Homes
  • 3rd quarter 2009 actual- $210,400
  • 3rd quarter forecast – $208,600 (under by 0.85%)
  • Median Home Prices-Existing Homes
  • 3rd quarter 2009 actual- $178,300
  • 3rd quarter forecast – $186,600 (over by 4.66%)
  • Mortgage Interest Rates (fixed-rate mortgage)
  • 3rd quarter 2009 actual- 5.16 percent
  • 3rd quarter forecast – 5.44 percent (over by 5.42%)
  • Considering all the factors that affect the housing market I actually think Fannie Mae did pretty good in their forecast last year. They overshot new home sales a fair amount but undershot existing home sales by a much smaller percentage. Overall on combined home sales they got within 4% of predicting the number of sales. I also think they did pretty good on median home prices.

    So, since Fannie Mae’s projections last year were fairly accurate lets hope the current projections will prove to be as well. If so, then it will be clear that the worst is behind us.

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