Fannie Mae chief economist Doug Duncan believes cash purchases of homes will continue at "quite high levels" for the rest of this year as investors and even some homebuyers by-pass the traditional mortgage process.
He expects that sales of new and existing homes will increase by only 5% to 6% this year, compared to 2010.
However, one area of growth is cash purchases of foreclosed single-family properties by investors who are turning them into rentals. Surveys show that many consumers are reluctant to take out a mortgage – but still want to live in single-family detached homes as renters, Duncan said during a podcast Friday morning.
The Fannie economist also noted that homebuyers with the financial wherewithal are finding it "easier to get through the process of ownership" via a cash purchase "than going through the mortgage underwriting process."
Back in December, Duncan forecast that single-family originations would total only $1.132 trillion in 2011, down 25% from the prior year. In his new May forecast, he sees loan production at a slightly lower level: $1.041 trillion.
He now believes home prices will fall 2% this year after a 4% drop in 2010. (Fannie forecasts are based on the Federal Housing Finance Agency housing price index). In its April forecast, Fannie economists estimated a 0.9% year-over-year decline.
The April forecast cited Fannie's internal HPI with prices declining 3.7% year-over year. The May forecast did not include an update.
Separately, Fannie reported in its quarterly securities filing that housing prices fell 1.8% in the first quarter based on its internal HPI. "We expect that home prices on a national basis will decline further, with greater declines in some geographic areas than others, before stabilizing in late 2011," Fannie said.
