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.
The U.S. housing market is healing, but how will we know when it's actually "healthy"? Let's use an analogy and say the patient – in this case, the housing market – was running an alarmingly high fever of 103 degrees in 2006, at the height of the boom. The patient collapsed and, after a difficult period of convalescence, now seems to be getting better. Housing starts, sales, and prices are rising, delinquencies and foreclosure inventories are trending down. The question is: What does a national housing market look like at a healthy 98.6 degrees?
To deliver the right prognosis, we need to compare the current housing market to the years before the housing peak, but not the peak itself. Let's start by reviewing the latest data on the market's condition.
Have we hit bottom in house prices or is the so-called “shadow inventory” lurking, ready to send house prices tumbling again? This is a topic we look at in greater detail in our August Economic & Housing Market Outlook.
The news on the economy has been lackluster at best, yet, for a change, the housing news has been encouraging. For example, the Freddie Mac House Price Index logged a 4.8 percent jump from March to June 2012, and a full 1 percent gain over the prior 12 months with 34 states showing higher home values. CoreLogic’s House Price Index was also up June-to-June, and the Federal Housing Finance Agency House Price Index posted an annual gain for the U.S. through May
One obvious benefit of a mortgage refinance is that it offers a borrower the opportunity to strengthen their fiscal house. The overwhelming majority of homeowners who refinanced in the closing months of 2011 did exactly that.
First some background. For months, fixed-rate mortgages have hovered at or near 60-year lows. In December, the 30-year fixed-rate mortgage averaged 3.96 percent and the 15-year averaged 3.25 percent. Rates in 2012 have dipped even lower at times.
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.