Fannie Mae Cuts Projections

Citing sharp drops in both new- and existing-home sales in January, Fannie Mae's Economics and Mortgage Market Analysis group has revised its total home sales projections for 2010, forecasting a 9% increase this year as opposed to its previous projection of a 12% increase.

‘While we had expected sales to pull back from an unsustainable pace in the fourth quarter, as home buyers rushed to buy homes before the tax credit was tentatively set to expire, the drop in the current quarter will likely turn out to be larger than we had anticipated," the Fannie Mae report says.

The economists say the second round of tax credits will be considerably less effective than the first round. The $8,000 credit for first-time buyers might have few takers left, Fannie Mae says, because the 2009 credit may have dried up the pool of qualified buyers.

Moreover, the economists say the $6,500 tax credit for repeat buyers "may not be enough to induce many homeowners to move, given that current homeowners generally must incur commission costs to sell their current homes, a cost not incurred by first-time home buyers."

The Fannie Mae team also lowered its purchase mortgage origination projections to $716 billion, adding that the purchase market should still dominate production volume. Total mortgage originations are expected to decline to $1.31 trillion this year from a projected $1.97 trillion last year, with the refinance share hovering around 44%.

A rebound in home sales is still expected in the second quarter, as home buyers rush to close sales before the expiration of the current tax credit in June.

"By the end of the year, if the labor market improves as expected, sales should start to trend up on a sustainable basis," the report says.

SOURCE: Fannie Mae


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