Dennis Norman
According to the Economics and Mortgage Market Analysis report just published by Fannie Mae, the weather was the culprit for the slow-down in home sales at the beginning of this year however, we did not get the boost they were anticipating from the extension of the tax credits. “Unfortunately, despite the high hopes associated with the extended and expanded homebuyer tax credit, housing activity appears to have faced a setback that went beyond the impact of adverse weather conditions. ” On a somewhat positive note, the analysts state they view the housing setback “to be a temporary one, and continue to expect activity to rebound later in the year but at a lower trajectory than previously projected.”
The report did not have much in the form of good news concerning new home sales and construction, citing:
- Residential construction spending increased in January, however, “the gain was entirely due to expenditures on home improvement.”
- Spending on new construction fell despite a modest increase in units of housing starts during the month, as the average cost per unit declined sharply.
- Homebuilding activity has improved substantially from its depressed level a year ago, with single-family starts reaching 33 percent above their level in January 2009. A leading indicator of starts pointed to continued increase in the near term, as single-family permits rose for the third consecutive month.
- Both new and existing home sales dropped sharply in January. New home sales fell for the third consecutive month in January to a level that surpassed the previous low recorded a year ago. A string of declines in new home sales caused the months’ supply to increase in each of the past three months, reaching the highest level since May 2009. Existing home sales have fared better. Despite two consecutive sharp drops, January sales remained nearly 12 percent above their record low.
Looking forward, here is what the Fannie Mae analysts are predicting:
- Home sales will likely fall further in February, suggested by a sharp decline in the pending home sales index in January. Furthermore, mortgage applications to purchase homes have remained near their lowest level since 1997, according to the four-week moving average of the Purchase Index in the Mortgage Bankers Association Weekly Applications Survey.
- Weak housing demand bodes poorly for the housing starts outlook. As a result, we revised downward our projected housing starts for the first half of this year.
- We continue to expect home sales to rebound in the second quarter, as homebuyers rush to close sales before the expiration of the second tax credit in June.
- In the third quarter, we expect a payback as the tax credit will likely pull some of the demand forward. By the end of the year, if the labor market improves as expected, sales should start to trend up on a sustainable basis.
- For all of 2010, we project a nine percent increase in total home sales, compared with an increase of 12 percent in the previous forecast. Home price declines moderated in 2009 and we expect the trend to continue this year.
One of the keys to the forecast is “if the labor market improves”……another big variable is going to be interest rates. They still remain at near historic lows, and the fed’s keep telling us that the risk of inflation is low but I’m a little skeptical about rates and are concerned we may be seeing higher mortgage rates by year end. If unemployment improves significantly and if rates hold reasonably steady hopefully we will see the recovery that is being forecasted. Couple of BIG IF’s in my humble opinion though….
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