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.
With the New Year fast approaching, ‘tis the season to assess the 2012 outlook for the macroeconomy and housing market. Here are five items from our crystal ball.
Economic growth will likely strengthen to about 2.5 percent in 2012.
U.S. economic growth appears to have accelerated in the waning months of 2011, with fourth-quarter growth expected to come in around 2.5 to 3.0 percent, annualized, by most forecasters. Evidence to support the pick-up was stronger retail sales, low inventory levels, and a 477,000 three-month gain in private non-farm payroll employment from August through November. Given the anemic 1.2 percent annualized growth over the first three quarters of the year, the final quarter could provide some needed momentum as we head into 2012.
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.