Fannie Outlook: Near Term Dicey, Longer Term Better

The mortgage market is entering a period of "retrenchment" and a recovery will depend on the growth of the U.S. economy and employment, according to Fannie Mae economists. "Clearly we are entering a period of retrenchment with the expiration of the [homebuyer] tax credits," said Richard Koss, director of mortgage market analysis at Fannie Mae. "It is still a very open question as to how deep and how long that retrenchment is going to be," he added. Fannie's latest forecast shows single-family originations peaking at $361 billion in the second quarter, which will serve as the high point for 2010. For the third and fourth quarters, the GSE predicts that fundings will fall 10% and 9%, respectively. Koss noted the tax credits have drawn sales from the future which will take the wind out of activity for the balance of the year. But he hopes to see a recovery in mortgage applications in the fourth quarter. Over the past five months, private job growth has averaged 125,000 a month, including the May report which shows a disappointing 41,000 increase in private sector jobs. Koss expects to see "modest" job growth going forward and into next year. In the coming months, he believes job growth could average 250,000 to 275,000 new positions a month, which would help the mortgage market.