PMI sees 2011 existing home sales increasing 8.3%
Home sales should continue to climb this year because of the strengthening economy and the high affordability of property, according to one private mortgage insurer. PMI Mortgage Insurance Co. (PMI) expects existing home sales to rise 8.3% to 5.31 million units in 2011 with new home sales increasing 29% to 415,000 units. Analysts at the Walnut Creek, Calif., firm said projections for 2010 of 5.56 million existing home sales and 648,000 new home sales came in off the mark because the large number of distressed properties hurt both metrics. Declining home values and low household formations also hindered new home sales, PMI said. The firm projects total mortgage originations to decline to about $1.29 trillion this year from $1.54 trillion in 2010. The company then sees originations bouncing back next year to $1.44 trillion, which would representing a 12% gain driven by higher purchase volumes due to rising rates. PMI sees the average rate for a 30-year, fixed-rate mortgage hitting 5.5% by the end of this year and increasing to 6.5% by Dec. 31, 2012. Analysts had estimated the average rate for a 30-year, fixed would reach 5.5% by the end of 2010. They admittedly missed the actual average of 4.68% and said financial crisis in the Euro zone hurt the prognostication, as "these sorts of shocks tend to be inherently unforecastable." The firm expects the purchase origination share of the overall mortgage market to rise to about 61% in 2011 from 32% a year earlier, as interest rates move away from the historically lows reached in 2010. If interest rates are rising due to a recovery in the overall economy, then the consequent jobs growth "should more than offset" the higher rates and boost home sales, according to PMI. But if rates are climbing because of higher inflation or a declining value of the U.S. dollar, jobs growth won't come and home sales will decline this year. "At this point, it is more likely that mortgage rates are rising because of strong economic growth than for other reasons — or at least mostly for growth reasons," PMI said. Write to Jason Philyaw.