Freddie Mac Delivers Housing Market Outlook

There were a handful of important pieces of information in the February Economic Outlook issued by Freddie Mac on February 8.

In addition to the usual forecasts of future performance of both the economy in general and the housing market in particular, the report recapped some of the more interesting facets of the 2006 industry.

For example:

• Inventories of new homes have begun to decline and were down to a 5.9 months supply at year’s end, compared to 7.2 months in July. However, Census Bureau figures on new home sales are recorded at the point that sale contracts are signed. This might be when the house is completed and waiting for an owner; or at the point that the builder puts the raw home site on the market. Therefore, numbers are never exact.

• Excess inventories may continue to weigh on home prices over the long term and sellers are only reluctantly lowering prices as they slowly recognize the new reality of a buyer’s market.

• Supply figures are lowering relative to demand for home loans because housing starts have decreased. Single family starts in December were off 30 percent from their peak but sales of new and existing homes were down 18 and 14 percent respectively. This decrease in new homes coming on the market will eventually, maybe over as much as a year, ease the inventory glut.

• Poor credit performance among loans issued in 2005 and 2006, especially non-conforming or bad credit mortgages, is a red flag that indicates a possible rise in delinquencies if job losses or other problems increase and homeowners cannot refinance home loans or sell their homes because of a weakening market.

• The adjustable-rate mortgage share of all mortgage originations will fall to 13 percent this year but will recover, perhaps to as much as 15 percent in 2008 as the interest rate yield curve widens a bit.

SOURCE: Mortgage News Daily