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CHICAGO (MarketWatch) — Mortgage rates will continue to remain near lows for the year ahead, while home prices are expected to remain flat, the Mortgage Bankers Association’s chief economist said on Tuesday.
And both are expected do little to inspire anyone to buy a home.
Right now, many renters are content to continue renting, said Jay Brinkmann, chief economist for the group, speaking at the MBA’s annual convention in Chicago this week. “As we start seeing the first stories of prices going up, that will pick up the markets somewhat,” he said.
See related story: Protestors rally at mortgage bankers’ convention.
Rates on the 30-year fixed-rate mortgage are expected to average 4.4% next year, after averaging about 4.5% in 2011, according to the MBA’s forecast. Rates are expected to climb to an average 4.9% in 2013.
This expectation of low rates and low prices is part of what is keeping consumers standing pat.
“Consumers are pretty well in tune,” said Doug Duncan, chief economist for Fannie Mae, adding that they “have a good grip on the fact prices are not going to go up anytime soon.”
The housing market is in the fifth year of a 10-year adjustment in prices, said Duncan, who briefed reporters at the convention. He expects a 3% decline in prices from now until early next year, excluding distressed sales, with prices flat the rest of 2012.
And that means another weak year for the mortgage industry.
In total, $900 billion in mortgage originations are expected for 2012 — the lowest volume for the industry since 1997, according to the MBA. Originations are expected to total $1.2 trillion in 2011. Next year, refinancing is expected to drop significantly, coupled with only a slight increase in mortgages to purchase a home.
Of course, any forecast these days comes with a slew of caveats.
Europe may already be in a recession, and the default of Greece is a foregone conclusion, Brinkmann said. A recession across the pond could pull the United States into a mild recession, he added.
“If the economy tips into recession, rates would stay lower for longer, but we do not anticipate they would drop significantly. If the economy recovers more quickly, even with the Fed’s Operation Twist, longer-term rates could rise faster,” Brinkmann said.
The road ahead
Despite all the uncertainty, small things could be done to improve the housing market, said Mark Zandi, chief economist for Moody’s Analytics, who spoke during a MBA panel discussion.
“I don’t think our problems are overwhelming. I think they are manageable, and don’t think we need one big thing that’s going to solve our problems. We just need to do a few things around the edge, and housing will be in a better place a year, a year and a half from now,” Zandi said.
One of the ideas that got significant discussion at the convention was the government’s request for proposals on how to transition foreclosed properties into rentals. Read more: U.S. moves to sell, rent 92,000 foreclosures.
“This could really make a difference in pricing… in markets where foreclosures are so highly concentrated,” said panel member Jared Bernstein, former economic policy adviser to Vice President Joseph Biden.
The goal would be to take some of those distressed properties off the residential market, addressing a need in some communities for more rental properties while also stabilizing house prices, he said.
Also on Tuesday, U.S. Department of Housing and Urban Development Secretary Shaun Donovan said that the Obama Administration will be releasing details of a plan to revamp the government’s Home Affordable Refinance Program within the coming weeks. HARP allows qualified borrowers to refinance even if their mortgage is up to 25% more than their home’s current value, but the government wants to expand it to allow more homeowners to qualify for today’s low mortgage rates. Read more: Government refinance program to get overhaul.
Stabilizing home prices is key to getting the market back on track. When prices stabilize and start to move northward, you’ll see fewer of the 14 million borrowers who are underwater strategically defaulting, Zandi said.
Amy Hoak is a MarketWatch reporter based in Chicago.
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