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Economic outlook for 2011? Coming right up!

By: 16 November 2010 One Comment

The national Mortgage Bankers Association’s economic outlook for 2011 isn’t exactly rosy, but the group does expect to see an increase in homes sales next year.

The association expects to see mortgage originations fall from an estimated $1.4 trillion this year to slightly under $1 trillion next year. The drop will be driven by a decline in the number of people wanting to refinance mortgages, the association said in a news release.

Specifically, the association expects to see mortgages for home purchases increase slightly next year and then enter into a recovery in 2012. That 2012 date has been tossed around quite a bit, actually. Kathy Deck, director of the University of Arkansas’ Center for Business and Economic Research, said earlier this year she expects to see housing markets recover in 2012, too.

The reason? Deck pointed out that it will take that long for the calamity of risky loans issued prior to the virtual death of the mortgage backed securities market in 2007 to work through the system. That makes a lot of sense – defaults on those loans will have to be dealt with through foreclosure or other means and getting those off the books will take some time.

Justin Moore, president of the Mortgage Bankers Association of Arkansas, pointed out a bit of an irony here – this is the best time in years to purchase a home. Why? Falling interest rates and dropping prices mean consumers in a position to purchase can pick up a very good deal. As the housing markets improve, prices will likely go up, too, and current mortgage interest rates aren’t expected to stick around forever.

At any rate, the association expects to mortgages for purchasing homes total $480 billion this year, a decline of 28 percent from $665 billion in 2009. However, purchase originations should rise about 30 percent in 2011 as existing homes sales begin to recover and prices stabilizes. In 2012, the association expects purchase originations to increase to $877 billion in 2012.

While housing markets have typically been stronger in Arkansas than in the rest of the nation, the same general trends do impact what’s happening here in the Natural State. The association predicts that existing homes sales this year will end up around 8 percent lower than those in 2009, partially due to a drop off in activity after tax credits for first-time and repeat buyers expired at the end of April.

Next year, however, the association predicts existing homes sales will increase by 2 percent next year and then jump 16 percent in 2012. Existing homes, naturally, cover all single-family residences that are not new.

Of course, the association expects that unemployment rates will drive home purchases in the months – and years – to come. That stands to reason as people who don’t have jobs or are worried about losing the ones they have don’t tend to run out and buy houses. In Arkansas, the unemployment rate in September was 7.7 percent, up from the 7.5 percent rate a year ago but down from the national rate of 9.6 percent.

Increasing homes sales, then, are projected to track along with improvements in unemployment rates. The association projects the national unemployment rate to increase from the current level of 9.6 percent o 9.9 percent in the first quarter of 2011, and then drop to 9.5 percent by the end of next year. In 2012, the predicted national unemployment rate is 8.7 percent.

What about those amazingly low mortgage interest rates that have held up through the year? The association calls for an average mortgage rate of 4.4 percent in the fourth quarter of this year and expects to see that increase to 5.1 percent by the end of 2011. In 2012, mortgage rates should head towards 5.7 percent, the association said.

If the association is correct, then, we’ll start to see an improvement in sales next year and a recovery in 2012. We’ll just have to wait and see if the association is on the mark with its predictions, won’t we?

Column written by Ethan C. Nobles and distributed to Arkansas publications on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email =

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