Tuesday, June 23, 2009

Mortgage Bankers Association (MBA) finally released a more realistic forecast … maybe

As we have been saying, the housing market has not yet 'stabilized' and going forward it may not become rosy as soon as some assume. It appears that MBA is now viewing the real estate market from a more 'realistic' standpoint. MBA released a revised 2009 forecast which included mortgage originations of $2.03 trillion, down from its earlier projection of $2.78 trillion.

The lower guidance is due to not only lower purchases but also significantly lower refi's, which is self-explanatory given the higher rates. What was interesting was the fact that the government's HARP (Home Affordability Refinance) program has been applied to only 13k loans YTD, which is significantly below the government's 1.5MM - 2.0MM expectation. Of course 2009 is not yet over, but we can safely assume that HARP will not meet the "green shoots"-loving government's estimate.

Another number that stood out in MBA's projections was number of new homes sold in 2009. It expects 352k homes, up from it previous projection of 293k. This might sound positive, but obviously more homes sold are offset by much lower prices. Again, it lowered its total purchase origination estimate. We wonder why MBA upped its new homes sold projection. We think it may be due to the better-than-expected construction numbers released last week,
which we actually viewed as a negative. We continue to believe that construction is out-pacing purchases by too much, resulting in higher inventories which could drive down prices further.

MBA maintained its existing homes sales forecast of 4.8MM, with which we again disagree. We must say that tomorrow's existing home sales numbers may come in better than expected, but that's mainly because the data (annualized) is for the month of May. We think a potential decline in June has more than offset May's good numbers. This is similar to our opinion regarding new homes sales data, which is to be released on Wednesday, 6/24.

Overall, it appears that the housing market has not yet hit a bottom. As MBA also mentioned, this market moves along with interest rates, which will either remain at current levels, or may shoot up to too-high levels due to potential inflation, which will not be driven by economic growth but rather by all the money printing. The Fed is in a tough spot.

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