CHARLOTTE, N.C. — Doug Duncan, chief economist at the Mortgage Bankers Association, has a knack for making people feel secure and optimistic about housing’s future.
The key to understanding house prices, Duncan said at a real estate journalism conference Saturday, is population movement and jobs.
“The housing market is normalizing,” Duncan said, predicting that purchase mortgage originations this year will be back at levels seen in 2003.
House-price growth will slow to 6-7 percent, he said, and price appreciation may fall in some local markets but will rise nationally.
Duncan’s 2006 forecast released at the end of 2005 calls for 6.79 million existing-home sales and 1.22 million new-home sales this year with the median price for existing homes at $218,100 and the median price for new homes at $240,600. According to the forecast, mortgage originations are expected to reach $2.26 trillion in 2006, with rates on the 30-year fixed-rate mortgage reaching 6.6 percent.
Duncan also expects delinquencies on home loans to increase this year, but he said it will not be a “macro issue,” meaning that the overall market will not feel a major pinch.
Loan age and the growth in high-risk market lending will add pressure to loan delinquencies. “Over half of all loans out there are less than 3 years old,” Duncan said. “Loans tend to peak in probability of delinquency in 3-5 years of their life.”
Also, the largest growth area for mortgage lenders is lending to those who have lower credit quality, he said, and that puts more pressure on delinquencies.
Delinquency problems associated with Hurricane Katrina will also factor into the overall increase, he said.
Delinquencies on residential mortgage loans in the fourth quarter 2005 increased, while the percentage of loans in the foreclosure process fell, according to the mortgage trade group’s latest delinquency report released in March.
The delinquency rate for mortgage loans on one-to-four-unit residential properties was 4.7 percent at the end of the fourth quarter, up from 4.38 percent in the fourth quarter of 2004 and 4.44 percent in the third quarter of 2005, according to the fourth-quarter report.
The percentage of loans in the foreclosure process was 0.99 percent at the end of the fourth quarter, a drop of 16 basis points from the previous year and an increase of 2 basis points from the third quarter of 2005, according to MBA. The seasonally adjusted rate of loans entering the foreclosure process was 0.42 percent in the fourth quarter, down 4 basis points from the previous year and up 1 basis point from the previous quarter.
Duncan on Saturday pointed to the condominium segment of the market as a leading indicator for the rest of the nation’s housing, though the condo segment tends to have the most volatile price movements. The current supply of condos on the market is at about seven months, Duncan said, up from the 3-months supply average the market saw a few years ago, and price appreciation has fallen more rapidly with condos than with other homes.
“Is it a bad story? No, it’s a normalizing one,” Duncan said.
And as part of the “normalizing” story, he expects more borrowers will switch to long-term mortgages from short-term, adjustable ones.
Economists, including Duncan, expect mortgage interest rates to continue to rise from historic lows this year.
However, Duncan points out that 34 percent of all U.S. households own their homes with no debt, and another 48 percent-50 percent of homeowners have a fixed-rate mortgage. That means that 82 percent-84 percent of households are not interest-rate sensitive.
Many housing economists agree that the market will slow this year, but that a bursting bubble is not likely.
David Seiders, chief economist for the National Association of Home Builders, at a conference last week said he expects new-home sales to drop 12 percent this year compared with a record 1.28 million units in 2005.
And Michael Moran, chief economist at Daiwa Securities America Inc., said, “The housing sector is going through an adjustment, not a collapse.”
Mark Zandi, chief economist for Moody’s Economy.com, said that “builders have done a pretty good job of matching supply and demand” and that “nationally, house prices and supply will go flat in 2006, 2007 and 2008,” which implies that there will be some price declines in key markets and that markets are going to “correct, not crash.”