But with high unemployment and home prices still falling in many
areas, analysts say there is little chance for a housing recovery.
By E. Scott Reckard, Los Angeles Times
The mortgage market told a sad story throughout 2011: record low rates, but few people taking advantage of them to buy homes.
The likely scenario in the new year, according to many analysts, is more of the same. Although the Federal Reserve
has pledged to keep rates low through 2013, the experts say high
unemployment and home prices that are still falling in many areas
provide little incentive for stressed-out consumers to surge back into
the housing market.
"I think there may be a little bit of an uptick in units sold," said
Doug Duncan, vice president and chief economist at mortgage finance
giant Fannie Mae. "But home prices will probably be down again, so the total dollars spent on purchases is likely to be pretty close" to 2011.
the other big government-backed mortgage company, had predicted two
years ago that lenders would write $1.8 trillion in home loans in 2011.
They later revised that estimate to just over $1 trillion.
In the end, home lending last year totaled $1.3 trillion, down from
$1.7 trillion in 2010 and an all-time high of nearly $3.3 trillion in
Last year's better-than-expected finish had nothing to do with home
purchases. Instead, a decline in 30-year fixed mortgage rates to
historic lows of less than 4% triggered a massive wave of refinancings.
As last year began, Freddie Mac expected applications for
home-purchase loans to make up two-thirds of all mortgage demand by the
end of 2011. As it turned out, about 4 in 5 mortgage applications in
December were from homeowners wanting to refinance, according to the
Mortgage Bankers Assn.
Little wonder why. Lenders were offering 30-year fixed-rate mortgages
to solid borrowers at an average of 3.95% last week, the ninth
consecutive week of rates at or below 4%, Freddie Mac said. (The survey
covers loans up to $417,000 with borrowers paying less than 1% of the
amount in upfront lender fees.)
That wrapped up a year of record lows. In 1981 and 1982, the average
30-year mortgage carried an interest rate of more than 16%, and the
typical rate was above 8% as recently as 2000, Freddie Mac said. The
average last year was 4.45%. Freddie Mac economists are predicting an
average of 4.5% for 2012, increasing to 5.4% in 2013 — still
phenomenally low by historic standards.
But in the long-suffering economy, "remarkably low rates are not
enough," said Michael Fratantoni, an economist for the Mortgage Bankers
Assn. He noted that many homeowners can't even take advantage of the
opportunity to refinance because of "lack of equity in their properties,
poor credit and a weak job market."
With lending standards still tight and demand for home loans waning, Morgan Stanley analysts titled their housing outlook for 2012 "The Year of the Landlord."
"While we had forecast lower prices [for 2011], we did hold out some
hope that at the very least transactions would pick up slightly from
2010 levels," said the report from a team led by analyst Oliver Chang.
"However, it proved to be too optimistic a prediction," the report
said. "Not only did total home sales fail to rise, but also mortgage
applications for purchase continued to fall — indicating that not only
is tight mortgage credit limiting demand, but even the desire to buy a
home continued to wane."
Analysts aren't universally pessimistic: "Housing has hit the bottom
and has begun to heal slowly," said Cal State Channel Islands professor
Sung Won Sohn, a former top economics advisor to the White House and Wells Fargo & Co.
Although large numbers of foreclosures and other distressed home
sales are keeping housing prices from rising, the inventory of new homes
is at a 49-year low, setting the stage for a rebound, Sohn said in his
2011 housing forecast.