Analysts at PMI Mortgage Insurance Co. think sales of existing homes probably hit bottom in the first three months of the year, and are projecting sales will increase every quarter for the remainder of this year and next.

Increased sales of foreclosed and distressed properties will push sales of existing homes from an annual rate of 4.6 million homes during the first quarter — the worst quarter so far in the current downturn — to an annual pace of 5.2 million during the last three months of the year, PMI projects.

PMI’s latest monthly analysis of economic, housing and mortgage market conditions projects 4.89 million existing homes will change hands this year, just shy of the 4.91 million transactions seen in 2008. PMI projects sales of existing homes will continue to rebound in 2010 as economic conditions improve, reaching 5.37 million.

Although PMI doesn’t see the unemployment rate peaking until the first half of next year, at around 9.5 percent, recovery of job markets tends to lag behind the economy, and PMI sees signs that the recession will bottom out in the second half of the year.

While short sales and sales of real estate-owned properties, or REOs, should provide a boost for sales of previously owned homes, they will also put pressure on new-home sales, resulting in more drastic swings, PMI predicts.

PMI projects new-home sales will fall 28 percent from last year, to 349,000, before rebounding 38 percent to 483,000 in 2010.

Although PMI sees home prices as back in line with rents and income, excessive supply means last year’s 9 percent drop in median resale-home prices will likely be followed by another 12.9 percent decline in 2009. Much of the expected decline for 2009 took place in the first quarter, and existing-home prices should stabilize next year and post a small (1 percent) gain, PMI projects. …CONTINUED

With interest rates near historic lows, PMI is expecting the current boom in refinancings will grow single-family mortgage originations to $2.48 trillion, a 37 percent increase over last year. But the boom isn’t expected to last, with originations falling to $2.06 trillion in 2010 as the refi boom cools off.

PMI projects purchase-mortgage originations will grow by 22 percent in 2010, however, as the percentage of mortgages that are refinancings slips from 68 percent in 2009 to 53 percent in 2010.

Long-term interest rates will begin to move higher as soon as investors see signs that the Federal Reserve is ready to tighten monetary policy. While the timing of any reversal of the Fed’s current "aggressively easy" monetary policy is difficult to predict, PMI said, tightening is likely by the second half of 2010.

In the meantime, rates on prime jumbo mortgages too large for purchase and guarantee by Fannie Mae and Freddie Mac continue to maintain a higher "spread" above conforming mortgages. While the difference between prime conforming and jumbo loans once averaged around 0.25 percent, it’s closer to 1.3 percent today, PMI said.

Because of the lack of a secondary resale market for such loans, lenders have to keep them in their investment portfolios, making it "very difficult" to find jumbo loans that don’t carry high initial costs and fees, or restrictive loan-to-value and debt-to-income ratios, PMI said.


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