Posts by Frank E. Nothaft
Frank E. Nothaft is Freddie Mac’s chief economist. Nothaft is responsible for forecasts, research and analysis of the macroeconomy, housing and mortgage markets. He is also involved in affordable lending analysis and policy issues affecting the housing finance industry.
Whether by cutting their interest rate or shortening their loan term, homeowners today continue to strengthen their fiscal house. In fact, more than three in four borrowers who refinance their home mortgage are keeping their loan balance about the same or reducing it.
That's one key finding of Freddie Mac's second quarter 2011 refinance analysis.
The economy hit a soft patch during the spring, buffeted by rising energy costs and heightened economic uncertainty. Economic growth should pickup in the second half of the year, supported by accommodative monetary policy, restoring stronger monthly job gains and bringing the unemployment rate down toward 8.6% by the fourth quarter.
Homebuyer affordability remains very high, driven by the twin forces of low financing costs and a buyer's market. Mortgage interest rates have gradually moved lower for most of the spring, with fixed-rate loans just slightly above the half-century nadir attained last fall and likely to remain in a 4.5% to 5.0% range for 30-year product over the balance of the year. Likewise, U.S. house price indexes moved lower during the first quarter, helping set the stage for a high-degree of purchasing power for home seekers.
Recent data show that consumers generally are shedding debt – and lowering or paying down their mortgages is just another way they’re doing it. Between 2007 and the fourth quarter of 2010, mortgage debt declined more than $400 billion, according to the Federal Reserve Board.
With mortgage rates in the four percent range (the likes of which haven’t been seen in more than 50 years), many borrowers have refinanced their mortgages.
The housing crisis this country has experienced over the past four years has been the worst since the Great Depression. That comes as no surprise to most Americans; as home prices fell, the country saw a vigorous debate about the crisis, and about the laws and regulations that have emerged to help prevent another one from happening.
What is surprising is how often the debate here characterizes boom-bust cycles in housing prices as though they are uniquely American. They aren't.
As in the past, key macroeconomic drivers of the economy – such as income growth, unemployment rate, and inflation – will affect the performance of the housing and mortgage markets in 2011. With fiscal policy supporting aggregate demand for goods and services and an accommodative monetary policy providing low interest rates and ample liquidity to capital markets, the economic recovery should accelerate gradually over the year, with the second half of 2011 exhibiting more growth and job creation than the early part of the year.
With that as the macroeconomic backdrop, these forces will support a gradual recovery in the housing and mortgage markets. Here are five features that will likely characterize the 2011 housing and mortgage markets.