by Calculated Risk on 2/07/2007 04:50:00 PM

"Real home-price gains, adjusted for inflation, will be negative this year, next year and possibly the year after that."
David Berson, Fannie Mae Chief Economist, Feb 7, 2007

From MarketWatch: Housing still on down slope

"I don't think we've seen the bottom," said David Berson, chief economist for Fannie Mae. "We're going to see a much bigger drop in investor demand this year. But by the second half of the year the market will stabilize, if investors pull out quickly."

Berson said he expects the home-price index calculated by the Office of Federal Housing Enterprise Oversight will show a nationwide decline in values for 2007, the first time that will have happened since the data began being collected in 1975. Unlike other measures, the OFHEO data measure the price changes on the same homes over time, meaning the index is less likely to be skewed by the types and locations of sales.

"It won't be a big decline, maybe 1%. And the declines will be far more centered in areas that have had the most investor activity," he said. "Real home-price gains, adjusted for inflation, will be negative this year, next year and possibly the year after that."

My forecast that "prices will fall nominally by 1% to 3% nationwide" is similar to Berson's.

Here are a few more recent forecasts:

Home prices will fall 10% on average in 2007
UBS analyst Margaret Whelan, Nov 6, 2006

"We believe nationwide home prices -- as measured by the federal OFHEO repeat sales index -- will be roughly unchanged in 2007. ... The risk to our price forecast is to the downside."
Saumil Parikh, PIMCO Portfolio Manager, Dec 27, 20062007

"Whether prices go down or stay the way they are, you can pretty much guarantee that whatever the value of your house now, that's going to be the value of your house in 2011."
Dr. Christopher Thornberg, October 19, 2006

"I expect at least a 20% decline in median single-family house prices nationwide, and that number may be way understated."
A. Gary Shilling, August 29, 2006, for the entire bust, not 2007.

[Orange County] house prices this year will increase 7 percent
Broker Gary Watts, Feb 7, 2007

by Calculated Risk on 2/07/2007 03:56:00 PM

From Northern Trust: The Fed Probably Thinks It Is On Hold for All of 2007

We don’t. We continue to believe that the Federal Reserve’s next move is to cut the federal funds rate. However, the first interest rate cut now appears likely later in the year, perhaps on August 7, than we had been forecasting in recent months. The trigger for the Fed to decrease the federal funds rate will be the combination of lower inflation and persistent below-potential economic growth.

On housing:

We believe that the bottom of the current housing recession lies quarters ahead. An average post-WWII era housing recession entails about a 25% peak-to-trough decline in real residential investment expenditures. As of the fourth quarter of 2006, these expenditures were down about 13% from their Q3:2005 peak. So, unless this is a milder-than-average housing recession, the trough lies ahead.

And on tighter lending standards:

Click on graph for larger image.

... effective housing affordability is likely to fall as federal and state financial regulators clamp down on “exotic” mortgage products as well as the mortgage market itself. In the past couple of months a number of exotic mortgage lenders and brokers have closed their doors as intermediate buyers/securitizers of this product have pulled back. The Fed’s latest survey of bank lending standards shows a sharp rise in the number of banks tightening their lending standards for residential mortgages (see Chart 2). In other words, credit conditions in the mortgage market are tightening.

by Calculated Risk on 2/07/2007 11:32:00 AM

"... many families found it cost effective to cash-out equity through a new first mortgage even though it raised their rate."
Amy Crews Cutts, Freddie Mac deputy chief economist, Feb 6, 2007

Freddie Mac reports: Refinance Activity Remains High; Cash-out Share Falls in Fourth Quarter

In the fourth quarter of 2006, 84 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac’s quarterly refinance review. This percentage is down from the third quarter of 2006, when the share of refinanced loans that took cash out was a revised 87 percent.

"... many families found it cost effective to cash-out equity through a new first mortgage even though it raised their rate." said Amy Crews Cutts, Freddie Mac deputy chief economist. "This quarter we saw $70.7 billion cashed out, down from a revised $80.2 billion cashed out in the third quarter of 2006. Cash out refinance volume is expected to decline over 2007, due to lower expected refinance shares overall and lower mortgage origination activity than in 2006."

"... there are roughly $500 billion in outstanding first-lien adjustable-rate mortgages that will see a monthly payment increase due to an interest-rate reset, the start of amortization, or both, in 2007, and a large number of homeowners with second liens that adjust each month depending on changes in the prime rate. We expect that many borrowers facing payment increases this year will refinance prior to their payment adjustment."

by Calculated Risk on 2/07/2007 10:57:00 AM

The Mortgage Bankers Association (MBA) reports: Market and Purchase Applications Decrease in This Week’s Survey

Click on graph for larger image.

The Market Composite Index, a measure of mortgage loan application volume, was 630.1, a decrease of 0.2 percent on a seasonally adjusted basis from 631.1 one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week and was up 1.4 percent compared with the same week one year earlier.

The Refinance Index increased 0.2 percent to 1943.4 from 1940.2 the previous week and the seasonally adjusted Purchase Index decreased 0.8 percent to 404.7 from 408 one week earlier.

Mortgage rates decreased slightly:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.23 percent from 6.29 percent ...

The average contract interest rate for one-year ARMs decreased to 5.84 from 5.86 percent ...

The second graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is down 4 percent to 413.78 from 430.8 for the Purchase Index.

The refinance share of mortgage activity decreased to 46.1 percent of total applications from 47.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 22.3 from 21.37 percent of total applications from the previous week.

by Calculated Risk on 2/07/2007 12:53:00 AM

From the AP: California short $1 billion in tax revenue, controller says

"Tax payments are down about $1 billion, and we don't yet have the source of that decrease," said Controller John Chiang, holding a news conference at the state's tax-collection center, where 2006 tax returns have begun to trickle in.

Chiang speculated that the state's slumping housing market might be a cause of the revenue decline.