at Fannie Mae released their first economic forecast of 2013 and introduced their
theme for the New Year, "Transition to Normal." This theme, they said, has profound
implications for a number of longer-term challenges facing the country and
reflects the rebound of housing along with the fiscal policy decisions made and
yet to be made. "It is
unclear where this
lead and what type of
economic growth path
awaits. Some have
questioned whether the country has entered a prolonged period of below-potential GDP growth, which
they label "the new normal." Others ask when housing will return
to normal." The forecast says.
The economists project that the first
interest rate hike by the Federal Reserve will not occur until the second half
of 2015, so long-term interest rates should increase very gradually over the
next few years with the yield on the 10-year Treasury note rising from its
current 1.86 percent to 2 percent at the end of 2013 and 2.3 percent at the end
of 2014. Mortgage rates should follow a
similar pattern, ending 2013 and 2014 at around 3.8 percent and 4.2 percent, respectively.
The Federal Reserve Board's Senior Loan Officer Opinion Survey indicates that while the majority of lenders
have loosened mortgage lending standards slightly from the tough
ones adopted in
2007 they have changed little since 2010. This partially explains the moderate increase in home sales despite record
Rising guaranty fees and FHA insurance premiums will increase the cost
of obtaining mortgages going forward; however the effect of the newly released Qualified
Mortgage rule mortgage originations is still an unknown.
Policies encouraging refinancing are likely to wane after this year. There are still significant numbers of
homeowners who could benefit from refinancing and they should keep the level of
activity high for the rest of this year.
The Home Affordable Refinance Program is set to expire at the end of 2013
and the Federal Reserve will likely give further guidance on its plans to end
quantitative easing which will start to put upward pressure on interest rates. 'Thus, we expect 2012 to be seen as the high watermark for refinances and 2013
as the first of several
transition years as the housing finance
transitions back to a more normal
purchase and refinance activity," the
Housing indicators show that the
recovery in that sector is on a faster upward track. Improvement in employment and low mortgages
rates are beginning to drive prices away from their low point in the first
quarter of last year and housing's contribution to economic growth is expected
to increase in this and the following years.
New and existing
home sales have trended higher and the inventory of
both new and existing homes for sale have dipped well below their long-term averages, indicating a balanced home sales market. Declining inventories amid rising demand has created opportunity for home
building activity: both housing starts and permits
are on the upswing for both single-family and
one of the main components of housing demand,
continues to rebound, helping to reduce the homeowner and rental vacancy rates. Lenders have increased efforts to implement short sales and other foreclosure alternatives, helping to support better
home price trends.
Serious delinquency rates, though still
high by historic standards, have gradually declined from their
peaks in most areas.
Home prices have
reflected a more balanced housing market and declining shadow inventory, with annual gains accelerating substantially in the second half of
2012. Improving market
conditions have accompanied a corresponding rise
in homebuilder confidence. Overall,
home sales, and home prices
as well as homebuilder
confidence, have risen
to multi-year highs.
expects housing starts to rise
by approximately 23 percent in 2013 to
about the same increase as in 2012. While still well below the peak of more than 2 million units in 2005, it will be more
than 60 percent above the record low in 2010.
projections of headship
rates-the rates that population in various age cohorts
form into households-
coupled with new Census Bureau data, leads to an estimate of a 1.37 million
annual growth in households in the
second half of the decade.
During the same period,
there should be an annual increase in
vacancy units of 160,000.
This component of housing
demand includes demand for second homes and vacant
homes for sale and for rent required to facilitate the liquid operation of a healthy housing
market. Vacancy rates have trended close to their
The third and final component of housing demand is net
removals, which include houses lost to
intentional demolition and disasters,
and the net conversion of structures between residential and non-residential use. Fannie Mae "conservatively"
estimates 230,000 net removals per year or 0.2 percent of the housing stock. Summing up all the units of housing required for new households, vacant units, and net removals, Fannie Mae expects a "normal" or sustainable housing supply of
1.76 million units
of single-family, multifamily, and
indicates continued rising homebuilding
activity, with housing starts reaching sustainable levels in 2016, marking a 10-year process
of transition from the
downturn back to
Existing home sales
should to trend up steadily, reaching nearly 6
million units in
2016. That pace
of sales implies a 4.3 percent
increase in the housing stock,
which appears to be the
normal rate of turnover,
based on historic trends.
Given the expectations of continued improvement in housing starts, home sales, and home prices in 2013, the economists project that purchase mortgage
originations will rise to $642 billion from a forecast of $518 billion in 2012 while refinance originations should
decline to $961 billion from a projected $1.4
trillion in 2012,
a refinance share
of 60 percent compared to 73 percent in
2012. Outstanding mortgage debt will
decline an additional 0.8 percent in 2013, following an estimated 2.2 percent decline in 2012.
The American Taxpayer Relief Act of 2012 which was signed into law on
January 3 contained two provisions which should have a positive impact on
housing. One is the extension of the Mortgage Forgiveness Debt
Relief Act of
2007 which excludes debt forgiven by a lender following a short sale or foreclosure
from taxation. The second provision
extends the deductibility of mortgage
insurance premiums for taxpayers.