Real estate recovery likely for 2011
12:00 AM CST on Sunday, January 9, 2011
Year 2011 will experience a gradual recovery for the housing and mortgage markets, according to analysts and researchers at Freddie Mac, the government-controlled buyer of existing home mortgages.
By last November, fixed-rate mortgage rates had drifted down to their lowest level since the early 1950s. This laid the foundation for a substantial refinance boom – with refinance accounting for four out of every five single-family loan applications, the Freddie report noted.
With Fed observers expecting the central bank to keep the federal funds rate at its current target range of 0 percent to 0.25 percent for most (or all) of 2011, relatively low mortgage rates will be a feature of the 2011 mortgage market.
While some rise in fixed-rates is expected, 30-year fixed-rate loans are likely to remain below or low 5 percent throughout the year, and initial rates on 5/1 hybrid ARMs will likely remain below 4 percent in 2011.
Regarding home prices, softness in prices generally occurs in the autumn and winter months, related to the seasonal slowdown in home purchases, and this season is little different from past ones in that respect. Those local markets that have relatively large inventories of for-sale homes and real-estate-owned (REO) dispositions will continue to see home value weakness in 2011.
However, U.S. price indexes as a whole are likely close to bottoming out. Most experts look for single-family U.S. indexes to bottom out in the first half of 2011, with a gradual (but sustained) recovery after that, Freddie Mac predicted.
Home affordability is already at record high levels. The three main ingredients that affect buyer affordability are mortgage rates, house prices and income.
With the first two at or near cyclic lows, buyer affordability is at the highest level in decades.
For the third quarter, the National Association of Realtors' Affordability Index reported one of the most affordable buying markets since the inception of the index in 1971. With affordability high, many first-time buyers will be attracted to the housing market in the new year, likely translating into more home sales in 2011 than in 2010.
Single-family mortgage delinquency rates remain high, but they have begun to decline in the aggregate. Based on the last several business cycles, the share of loans 90-or-more days delinquent or in foreclosure proceedings, known as the "seriously delinquent rate," generally crests within a year of the start of the recovery in payroll employment. The current economic recovery appears to fit well within that pattern.
Payrolls began to rise last January, and by the spring, the seriously delinquent rate had started to decline.
