MBA Economist Sees Housing Recession

The MBA's chief economist is also projecting that home values will decline by 12%-15% through mid-2009 from peak levels in late 2006. "Really, it's a housing recession," Doug Duncan said Feb 27 at the MBA National Mortgage Servicing Conference in New Orleans. He said he believes the Federal Reserve Board remains focused on keeping the economy out of a steep recession and is therefore likely to reduce rates again in March, despite recent data showing an increase in wholesale inflation. Another rate cut will help reduce the pressure on subprime borrowers whose teaser rates expire this year, meaning their monthly payments will adjust upward to a level tied to short-term rates. Many of the hybrid two- and three-year ARMs originated in recent years will adjust to rates that are 5.0-5.5 percentage points above the six-month London interbank offered rate.