Are record-low interest rates masking high-cost mortgage lending?

Are record-low interest rates masking high-cost mortgage lending?

Five leading economists weigh in and the answer may surprise you

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Fannie Mae: Housing will pave the way in ‘new normal’ economy

The beginnings of the housing rebound, along with the fiscal policy decisions established or currently in the process of being made, give a sense that the economy is beginning to transition back to normal.

However, there is uncertainty where this transition will lead and what type of economic growth path looms.

Nonetheless, the gained momentum in the housing recovery, which has transitioned to a faster upward track, will be a key contributor to economic growth, Fannie Mae said in its January 2013 Economic Outlook. 

The housing market is poised to contribute to overall growth particularly providing a rising contribution to Gross Domestic Product in 2013. Home sales, home prices, home building activity as well as homebuilder confidence appear to be on the upswing, rising to multi-year highs. Deutsche Bank (DB) recently released numbers outlining the growing weath of American households.  The bank is projecting home price appreciation of 5-10% in 2013, which translates into a further increase in household assets, ranging between $860 billion and $1.72 trillion.

"As fiscal policy debates subside later in the spring, we expect to see some upward trend in economic activity, with growth accelerating moderately in the second half of the year," said Chief Economist Doug Duncan at Fannie Mae. 

He added, "That momentum will find support in the form of continued, albeit slow, improvement in the housing sector. In the longer term, the gradual return of manufacturing to the U.S. and increasing domestic energy production will work together to accelerate economic growth. However, we anticipate overall growth in 2013 will remain below its potential, extending what has been a slow recovery."

Housing starts are expected to rise by 23% in 2013 to 950,000 units following a similar trend in 2012. Although this level of activity is far below the peak of more than 2 million units in 2005, it will be more than 60% above the annual record low of 2010.

The projected annual household growth in the second half of the decade is expected to 1.37 million. During the same time, an expected annual increase in vacancy units will hit 160,000, Fannie Mae noted.

New and existing home sales have trended higher and the inventory of homes available for sale trended lower, indicating a balanced industry.

Existing home sales are expected to trend up, reaching nearly 6 million units in 2016, implying a 4.3% increase in the housing stocks. 

"Declining housing inventories amid rising demand has created opportunity for home building activity: both housing starts and permits are on the upswing, with improvement seen in both multifamily and single-family structures," the outlook said.

Lenders have also increased efforts to implement short sales and other foreclosure alternatives, which helps support better home price trends. 

For example, serious delinquency rates have gradually declined from their peaks in most areas. 

As a result of continued improvement in housing starts, homes sales and home prices, projected purchases of mortgage originations will rise to $642 billion from a forecast of $518 billion in 2012.

However, refinance originations are expected to decline to $961 billion from a projected $1.4 trillion in 2012, resulting in a refinance share of 60%, dropping from the expected 73% share in 2012.

cmlynski@housingwire.com

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