The fourth quarter was not a stellar time for home sales according to Fannie Mae's Housing Forecast for December. While existing sales are projected to improve from 289,000 to 299,000, new home sales will drop from 151,000 to 125,000. In the same quarter of 2009 only 76,000 new homes sold, but existing sales were much more robust, totaling 373,000. The year overall will be a rather dismal one for housing with total sales down 7 percent from the 2009 figure. Still, the 4.7 million total sales expected for the year is an upgrade from Fannie Mae's estimate of 4.5 million made earlier in the year.
The home price picture is also downbeat. The median price of a new home is projected at $214,500 and an existing home at $167,400 at year's end, a -0.07 change from one year earlier when the median prices were $218,800 and $170,800 respectively.
"Despite rising mortgage rates, our forecast for home sales is stronger than the previous forecast, given our brighter economic growth and labor market outlook," said Fannie Mae Chief Economist Doug Duncan. "We expect modest increases in home sales, despite recent interest rate rises, due in part to modest additional declines in home prices, and we expect people to take advantage of affordability as their employment and income outlook brightens."
After a big drop in the first quarter, mortgage originations have increased steadily through the year to a total of $450 billion this quarter compared to $421 billion one year ago. It is refinancing, however, that is carrying the market. Purchase mortgages are expected to represent only 25 percent of originations this quarter.
Fannie Mae's economists expect matters to improve only slightly in 2011. Sales of homes are projected to increase 4.9 percent over the year but prices of both new and existing homes will continue to slide to a median of $216,100 (new) and $169,500 (existing.) Originations will drop from a total of $1.53 trillion this year to 1.1 trillion in 2011. This decrease will be attributable to a drop in refinancing which is expected to account for only 42 percent of the market.
Here is an excerpt from the release, "We have repeatedly mentioned that the strength of the rebound in home sales will largely depend on improvement in the labor market. We expect total home sales to fall seven percent this year before rising by about five percent in 2011, slightly stronger than the three-percent gain expected in the previous forecast. Our projection for housing starts is little changed from the November forecast, with total starts rising in 2010 by about six percent from 2009’s record-low level, followed by an increase of about 18 percent in 2011."
The Housing Forecast is part of the larger Economics and Mortgage Market Analysis issued monthly by Fannie Mae. The report upgrades domestic growth for 2011 from 2.9 percent to 3.4 percent, expects improving labor market conditions, and anticipates that the housing recovery should gain momentum going into 2011 "if the expected stronger labor market materializes." Still, unemployment, currently at 9.7 percent, is expected to remain at high levels for the next two years, averaging 9.5 in 2011 and 8.6 in 2012.
