Wednesday, November 18, 2009

Optimistic 2010 Home Sales Forecasts

Since the NAR recently trumpeted their 2010 forecast at their convention I decided to look at the national home sales forecasts for the NAR, Fannie Mae and Freddie Mac.

The NAR sees existing home sales (EHS) rising 13.6% from 5.011 million sales to 5.694 million sales. From my observation when these associations must face their membership at the yearly convention it is when they have the most optimistic number for sales. That is an awfully bold prediction, maybe it is because they think prices will fall thus spurring sales. But no the NAR predicts median prices will increase 3.6%. Hmmm, well Home sales up.. prices up.. maybe they think mortgage rates will drop in 2010. Again, no, they are predicting an increase from 5.2% to 5.7%. Maybe they think unemployment will drop? Again, no, from 9.3% to 9.8%. Usually you can squint really hard and figure out where people are coming from and how they arrive at their numbers but I am having a hard time figuring out the immaculate housing recovery the NAR is predicting.

For Fannie Mae they are predicting EHS rising 10.1% from 4,959 to 5,459. At least they think prices will drop from 173.8 to 170.8. Their belief is mortgage rates will rise from 5.07% to 5.42%. Fannie mae is also predicting mortgage origination volume will be down 30% with refinances dropping by half and purchases increasing.

For Freddie Mac they are predicting Total home sales rising 13.4% from 4.85 million to 5.50 million. Freddie Mac is predicting prices dropping 3% according to the Case/Shiller Index. Interestingly Freddie Mac is predicting basically flat originations YoY and interest rates rising from 5.1% to 5.6%.

To me this seems like wild-eyed optimism. The restraints on supply in the price ranges that are selling means we will have fewer sales not more. If interest rates are going up, a safe bet because of the Fed announcing stopping MBS purchases, then affordability goes down and again sales will drop. The tax credit is expiring but has been less and less effective motivating sales and I think the abundance of REO inventory and tremendous interest rate drop last year had more to do homes selling than the tax credit. Fannie Mae's forecast for refi originations dropping 50% makes the most sense and I think we will see a wave of additional mortgage officer layoffs in 2010. Refinances are spurred by rates dropping below what the mortgagor currently has.. rising rates isn't conducive for a refi wave.

Here are the headwinds for the coming year:
  1. The Fed ending MBS purchases and interest rates rising.
  2. The Tax Credit ending
  3. Unemployment increasing.
  4. Political pressure choking off foreclosures, i.e. motivated supply

Here is what I see could help the market:

  1. The other half of last years stimulus bill taking effect.
  2. A new stimulus bill.
  3. The plan to increase short sales should be announced soon.

The stimulus bills might just remove supply from the market resulting in even fewer sales. A job temporarily kept or received because of a government contract probably won't instill confidence and spur home sales.

It looks like the NAR and their kin are betting on a V-shaped housing recovery. I think they should be praying that home sales can maintain this level that was only this good because of tremendous stimulus combined with motivated supply. It is extremely difficult for me to envision any scenario which makes home sales increase YoY and none of those scenarios involve home prices going up and interest rates rising.


Anonymous said...

Perhaps they are including trustee sales/foreclosure sales in their projections. A home transferred to the bank via foreclosure and then sold to an occupant counts as two "sales".


TomK said...

I have never heard a snake oil salesman say his product was no good and I have never heard NAR say thing would be worse for real estate.

I think sales will drop as they have pulled alot of demand forward with the tax credits. Investors can only buy so many properties and many of these "investors" are of teh amateur kind who will find out being a landlord is expensive and difficult. I think interest rates rise alot more then expected, unemployment rises and stays high all year, more foreclosures come to the market, but there are alot less buyers. I think sales drop 10-20%, prices drop 10-20% more and it will be and awful year. This year was the part of the tsunami where the wave goes back out to sea and everyone wanders out thinking its safe only to be fully exposed for the larger wave they never saw coming.

Anonymous said...

These guys sell kool-aid and they have been drinking it instead of being real - to them, it is always a good time to buy, when they are only interested in their commission. They are the same guys trying to get into the appraisal business and giving themselves a role as a value-setter with their imitation designations copying The Appraisal Instute who made appraising a profession, not a bizniss!

Effective Demand said...


Trustee sales aren't double counted like that they are excluded from EHS and New home sale statistics.