By Lawrence Yun, Chief Economist 
Daily Forecast Update
- NAR’s monthly official forecast as of January 5th
- GDP 2009 Q4: +4.3%
- GDP 2010 Q1: +3.0%
- GDP 2010 Q2: +2.5%
- Unemployment rate by the mid-2010: 9.8%
- Average 30-year fixed mortgage rate by mid-2010 2009: 5.7%
What does today’s data mean for REALTORS® and consumers?
- Refinancing activity rose solidly in the past week. But mortgages taken out for home purchases remained low.
- A majority of economists now say home prices have already bottomed. Most REALTORS® also say the same.
- As this sentiment spills over to the general public, there will be lessening consumer fear impact on home purchases.
Mortgage Applications
- Mortgage brokers were busier the past week as they witnessed 22 percent jump in refinance applications according to weekly survey by the Mortgage Bankers Association. But mortgages for home purchase barely moved, with less than one percent rise.
- Compared to a year ago, both refinancing and home purchase applications are much lower. Refinancing is down by nearly 70 percent and purchase applications down by 27 percent.
- Take caution in reading the mortgage applications data. Actual home sales are comfortably above levels from one year ago. Either more home buyers are using all-cash without a mortgage or there is something wrong with the mortgage applications data. It is possible, due to mortgage industry consolidations and several major companies going under, that the data sampling can no longer provide valid comparisons with past data.
Home Value Projections
- According to the latest Blue Chip economic forecast, based on forecast submissions by about 60 economists, 57 percent now say that existing home prices have bottomed. This is the first time in recent years to my recollection where more economists are saying that there will be no further fall in home prices.
- Separately, according to a NAR REALTOR® survey with over 3,000 respondents, 69 percent say home values will rise over the next year.
- There is something called the ‘wisdom of the crowd’ which miraculously becomes correct in many incidences. For example, if you were to make a guess to how much I weigh (after having looked at me), you are sure to be wrong. But if I took the average of all the guesses in the room then the answer will be very close to my actual weight. One person’s forecast is wrong, but the average of many forecasts can become remarkably accurate or at least less inaccurate than most individual forecasts. With this in mind, are the home values really bottoming?
- There are great local market variations, so some markets will surely experience further price declines. But the majority may begin to see prices rise. On average, there could indeed be no further measurable price declines from this point onwards. However, knowing that forecasting is a hazardous sport, my own projection is for low single-digit price gains in 2010 and 2011.
Copyright National Association of REALTORS®. Reprinted with permission.
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