Fannie Mae's November Economics and Mortgage Market Analysis released this morning cites the depressed sentiments from the Conference Board consumer confidence index and the Fannie Mae National Housing Survey as one cause for concern regarding the development of the housing market.
Fannie Mae's economists are projecting that existing home sales in 2011 will be about 4.94 million, little changed from 2010 and that 2012 sales will be only slightly higher, reaching 4.96 million units. Sales of new homes are expected to total 306,000, down 6 percent from 2010 and then rise to 321,000 sales in 2012.
Homebuilders are more optimistic and homebuilding activity picked up in September but this was driven primarily by multi-family construction which, the report says, tends to be volatile. The low level of construction has reduced inventory down to 6.2 months which is not out of line with historical averages but "even with this lean inventory, builders find it difficult to compete with distressed properties in the existing home market, which reports supply of around 9 months." Fannie Mae forecasts that the oversupply of existing homes will continue over the coming years as distressed properties continue to come on the market. Total housing starts in 2011 are estimated at 595,000 and at 654,000 in 2012 with single-family starts representing 423,000 and 443,000 units.
The primary measures of home prices fell off of earlier gains in August and are expected to trend lower for the rest of the year because of weak demand and the inflow of distressed houses. Responses to the Housing Survey indicate that consumers expect prices to fall even further which can become a self-fulfilling prophesy. Median existing home prices are projected to finish 2011 at $165.40 and 2012 at $163.20. Median new home prices for the two periods are expected to be $221.80 and $218.90.
Single-family mortgage originations are projected to decline to $1.30 trillion in 2011 from an estimated 1.69 trillion in 2010. Fannie Mae expects that originations will decline still further in 2012 to $988 billion as an expected reduction in refinancing offsets increases in purchase applications. The refinancing share of originations is expected to drop to 53 percent from the current level of 75 percent. Total single-family mortgage debt outstanding will decline by an additional 1.6 percent in 2012 following a 2.3 percent fall in 2011.
Given the lack of improvement in the housing market despite record low rates, Fannie Mae expects housing to continue as a focus of policymakers and sees indications that the Federal Reserve is inclined to provide additional support. Federal Reserve Governor Tarullo has stated that he would like to see greater priority given to more Fed purchases of mortgage-backed securities (MBS) and Fed Chairman Beranke has indicated that this is "a viable option." Fannie Mae anticipates that such purchases will play a role "if the Fed decides to expand its balance sheet again."
Beyond housing, Fannie Mae sees the contraction in inventories and the slow gains in employment as indications the economy will likely skirt recession in 2010 but return to a slower growth path in 2012.