Much of what happens rests on the cost of money. Lower interest rates grease everything from home sales to commercial loans which the the economy at large. The Fed meets Oct. 30 to Oct. 31 and the lingering issues of the credit markets probably will give us another rate cut. Home Equity Loans and credit card purchases are very quick to respond but typically Fed rate cuts take six to nine months to completely filter through the economy.
Arms, are expected to reset and I read that they will add another $10,000 of annual mortgage payments to households. Without a rate reduction we will see even more supply, lower prices and more foreclosures. The more these things happen, the more people wait before buying as they try to catch the bottom. It just reinforces the existing trend. If anything should convince the Fed its time to lower rates (they are about where they where last year) this should do it.
I wanted to pass on to you the projections of the Mortgage Bankers Association; following is an edited list from the article
Housing Starts; We expect housing starts and home sales to reach bottom in the second and the third quarter of next year, respectively.
Existing home sales for 2007; will decline by about 12 percent from 2006 to 5.72 million units. Sales will decline further by about ten percent in 2008 before picking up by five percent in 2009.
New home sales; will decline by 22 percent from 2006 to 819,000 units. We expect an additional decline of ten percent in 2008. For all of 2009, we expect new home sales to rise by about six percent.
Home prices; for new and existing homes are expected to decline this year, with median prices falling about two percent. Prices should decline at a similar rate in 2008 before flattening out in 2009.
Residential mortgage originations; will decline about 15 percent in 2007 to $1.18 trillion from $1.40 trillion in 2006. Given projected declines in sales and prices for all of 2008, purchase origination should fall by 15 percent to 1.00 trillion in 2008. We expect purchase originations to rise about five percent in 2009, as home sales and home prices pick up.
Refinance originations; will also decline about 15 percent to $1.13 trillion in 2007 from $1.33 trillion in 2006. A significant amount of loans have faced or will face their resets this year and next year.
Total mortgage production will be down about nearly 15 percent to $2.31 trillion this year from $2.73 trillion in 2006. Total originations should decline another 18 percent next year as both purchase and refi originations drop.
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