Freddie Predicts 5 percent Increase in 2011 Home Sales
May 12, 2011
Freddie Mac projects a 5 percent increase in 2011 home sales over 2010, according to its May U.S. Economic and Housing Market Outlook.
“There are a number of positive signs in the housing market,” said Frank Nothaft, Freddie’s chief economist. "Homebuyer affordability remains extraordinarily high because of low mortgage rates and house prices that are well off their cyclic peak.”
The average rate on 30-year fixed-rate conforming mortgages has hovered between 4.75 and 5.00 percent for most of this year, according to Freddie Mac’s Primary Mortgage Market Survey. contract signings for existing home sales are up, presaging a pickup in activity as the housing market enters the spring selling season.
A relatively large supply of distressed properties entered the market during last winter, a period when homebuyer demand is seasonally weak, and has caused further erosion in national indexes. The National Association of Realtors reported that 40 percent of home sales in March were distressed sales, the largest monthly share since April 2009. Freddie Mac’s House Price Index for the U.S. declined 2.8 percent between December 2010 and March 2011, in part reflecting the large volume of distressed transactions in the housing market.
“We expect some firming in U.S. price indexes during the spring, perhaps even a pickup, with some weakness toward year-end and a bottoming next winter,” Nothaft said.
Unemployment numbers continue to be a concern and are slowing a recovery. The labor market report for April from the Bureau of Labor Statistics carried some better news. Employers added 244,000 jobs in April, the most in almost a year. Further, the private sector added 268,000, the most in five years.
“The recovery is not, however, growing fast enough to quickly reabsorb all the jobs lost since the recession,” Nothaft said. “Employment has to rise by roughly 130,000 a month to just keep even with labor force growth, and if the participation rate rises over the next three years to its pre-recession levels, the economy will need another 130,000 a month just for that. Thus we will need more than a quarter-million new jobs a month – something we have not yet seen on a sustained basis.”
The April unemployment rate edged up to 9 percent, partly reflecting discouraged workers who have re-entered the labor market. April’s data reflected the 27th consecutive month that the rate was 8 percent or higher and matched the post-WWII record set during the early 1980s (November 1981 to January 1984).
A large number of workers unemployed for a long period remains the predominant force behind seriously delinquent rates on mortgages. The average unemployment duration was 38.3 weeks in April, down slightly from the record of 39 weeks in March. Prolonged bouts of unemployment have obvious consequences for the financial health of households.
“Unemployment/income curtailment has been the single most important hardship reason that triggered delinquency on conventional loans made to prime-credit borrowers during the economic downturn,” Nothaft said.