The economic recovery should accelerate gradually throughout 2011, with the second half of the year exhibiting more growth and job creation than the early part, according to Freddie Mac chief economist Frank Nothaft.
Economic drivers including income growth, the unemployment rate and inflation affect housing and mortgage market performance. Next year, fiscal policy will support aggregate demand for goods and services and the accommodative monetary policy will continue to provide low interest rates and ample liquidity to capital markets, Nothaft wrote in
Nothaft said five forces will characterize the 2011 housing and mortgage markets—low mortgage rates, house price recovery, homebuyer affordability, fewer mortgage originations and lower delinquency rates.
While some rise in fixed-rates is expected, 30-year fixed-rate loans are likely to remain below 5% throughout the year, and initial rates on 5/1 hybrid adjustable-rate mortgages will likely remain below 4% in 2011, he wrote.
National housing prices will experience the typical softness experienced in the autumn and winter months and local markets with large real estate owned inventories will see continued declines in 2011. But Nothaft said price indices will bottom out by mid-year and begin moderate and sustained growth from there.
The combination of low rates and prices means affordability will remain at all-time highs, which will lead to more home sales next year than in 2010. But after this year’s boom in refinance activity, total mortgage originations will be down in 2011, Nothaft predicts.
Mortgage delinquency is directly linked to unemployment, Nothaft said, as historically, the rate of serious delinquent mortgages (90 or more days late) “generally crests within a year of the start of the recovery in payroll employment.” He expects the current cycle to fit historical trends.
“Payrolls began to rise last January and by the spring the seriously delinquent rate had begun to decline,” Nothaft said. “Look for the seriously delinquent rate in the overall market to gradually decline further during 2011, reflecting employment gains and family income growth, additional loan modifications and other foreclosure alternatives, and the transition of foreclosed homes to REO.”
