The overall economy has moved from a fragile recovery to firmer, less volatile growth, but the housing market is not expected to grow accordingly until 2012, according to the latest Fannie Mae economic outlook.
Fannie Mae chief economist Doug Duncan said the economy would grow by 3.6% this year, up from 2.8% for 2010. There will be a small rise in home sales, but the significant supply of homes on the market and the shadow inventory of homes that are not yet foreclosed upon will continue to hamper the housing market for some time, he said.
Duncan did cut his prediction for mortgage origination activity for this year from $1.13 trillion in its December outlook, to $1.04 trillion, with refinancings making up 37% of total volume.
Fannie Mae noted that mortgage interest rates rose by approximately 70 basis points at the end of the fourth quarter 2010. If those rising interest rates were largely a result of an improving economy and the labor market, rather than an increase in inflation expectations or concerns about the federal deficit, which Fannie Mae said it believes to be the case, then home sales will likely increase this year even without any additional government policy support.
Duncan does not expect an additional sharp up-tick in mortgage rates in 2011. Fixed rates should remain below 5.5%, and home sales should increase by 5%. Housing starts should increase by 18%.