RealEstateEconomyWatch.com

The consensus forecast among major real estate organizations is for the housing downturn to come to a close in 2009 and for the expansion to begin in 2010 according to a compilation of housing forecasts released today on Real Estate Economy Watch.com.

The Web site presented publicly available September housing forecasts of the National Association of Realtors, the National Association of Homebuilders, the Mortgage Bankers Association, Fannie Mae and Freddie Mac and then calculated the consensus (mean) prediction for each major housing measure for the group as a whole.

The group consensus predicted a sharp contraction in the housing industry this year, led by a 36.2 percent drop in new residential construction (housing starts) and a 17.1 percent drop in new home sales. The group projected that existing home sales would tread water, growing by only 0.3 percent. It is likely that existing home sales were bolstered by foreclosure sales throughout most of 2009. According to the National Association of Realtors’ economists, foreclosure sales comprised almost 50 percent of total existing home sales during the first quarter of this year and then averaged about a 33 percent share of sales during the second and third quarters.

Although the housing sector is expected to contract sharply in 2009, the housing group predicted good news for mortgage lenders, estimating that mortgage originations would increase by 37 percent by the end of the year. According to the Mortgage Bankers Association’s weekly survey on mortgage application activity and Freddie Mac’s survey on refinancing market shares, the primary reason for increased lending business can be attributed to a substantial rise in refinancing transactions due to lower mortgage rates throughout the year.

The major housing organizations are in agreement on the direction of home prices in 2009. The group consensus is for existing home prices to fall 12.2 percent, while new home prices are expected to fall 8.6 percent. The Mortgage Bankers Association was the most pessimistic for existing home prices, predicting a 13 percent drop, while the National Association of Realtors was the most pessimistic for new home prices, predicting a 9.2 percent drop.

Looking forward to 2010, the organizations are generally in agreement with home sales and housing starts, but differed markedly on home price predictions. The group consensus projected that existing home sales would increase 9.6 percent to 5.403 million units in 2010 compared to an estimated 4.929 million units registered in 2009. Similarly, the consensus forecast was that new home sales would increase 25.4 percent to 504,000 units compared to an estimated 402,000 units posted last year. The overwhelming consensus was that housing starts would rebound strongly in 2010. After falling 36.2 percent to an estimated 577,000 units in 2009, the group predicted that starts would rise 34.3 percent to 775,000 units in 2010.

The group predicted that mortgage originations would fall dramatically in 2010 even though home sales activity was expected to grow. The consensus projected a 22 percent drop in mortgage originations. Fannie Mae was the most pessimistic, predicting a 40.1 percent drop in originations, primarily due to a large expected drop in the refinancing business due to rising mortgage rates. All of the housing organizations predicted a rise in mortgage rates next year. The consensus forecast called for the 30-year mortgage rate to rise to 5.7 percent in 2010 compared to an expected 5.2 percent rate in 2009.

At present, the housing sector is experiencing a recovery in home sales and housing starts. Both measures are meaningfully above their January cyclical lows. Home price movements are also improving. Home price declines on a year over year basis have decelerated in monthly reporting, while home prices have increased in recent months on a monthly basis.

However, there are still significant risks to predicting a successful housing market recovery. Foreclosures are expected to mount over the next year or two because of rate resets on option ARM and interest only mortgage loans. Foreclosures add to housing inventories, which could slow the recovery. In addition, the $8,000 first-time homebuyer tax credit which is due to expire at the end of November, has been effective in enticing households to purchase homes during the past six months. If Congress does not extend the credit, the momentum in home sales could stall. Finally, the economy continues to shed jobs on a monthly basis, inhibiting home sales.