December 30, 2010 (Chris Moore)
One of the great past times in America is reading the predictions for the upcoming year. This year is no exception, especially in the housing and mortgage market. Watching the economy taking a beating like Rocky Balboa has been more than many Americans can bear, but just like in the movie, the contender may be beaten and bloodied…but he’s still standing at the end of the 14th round. So let’s take a look at the contenders in our Heavyweight Housing Prediction Bout…

In this corner…TrimTabs’ research chief Madeline Schnapp’s prediction strikes an ominous note, “The housing depression is unlikely to end before 2013.”

Her one, two punch prediction is based on the following facts:

– As of October (the latest month for which data is available), 7.04 million households were not current on their current mortgages, up 1% in the past two months.
– 25% of mortgage holders or 6.2 million are under water, meaning they owe more on their house than it’s worth.
– Housing prices are at risk of declining another 20%, putting more homeowners under water and more into foreclosure.
– Recent documentation flaws are keeping foreclosures off the market, but foreclosures currently account for 25% to 40% of all housing sales. Without a foreclosure inventory, sales will continue to decline, taking housing prices with them.
– The unsold housing inventory, visible and shadow (foreclosed or seized homes held by banks that have not yet been put on the market) stands at 6.2 million units or a 1.5 years’ supply.
– A recent backup in mortgage rates to 4.83% from 4.17%.
– Between 2003 and 2007, 40% of all new jobs were in some way related to housing.

And in the other corner…the bloodied, beaten, and bailed out Fannie Mae. In the December Economics and Mortgage Market Analysis, Fannie predicts new home sales and construction will bounce back next year, with nearly 20 percent gains projected as part of a broader recovery of the housing market and the economy in general.

To support its claim, Fannie presents the following facts:

– Stronger-than-expected economic growth
– Increased consumer and investor spending
– A rising GDP
– The stimulus effects of recently enacted tax breaks

“Given these recent positive developments, we believe that economic growth is poised to kick into higher gear, with an above-par performance lurking just around the corner—by the second quarter of 2011,” the report reads. “For all of 2011, we expect growth of 3.4 percent, compared with a projected 2.9 percent in the previous forecast.”

The report also says that while foreclosures and rising mortgage interest rates will present challenges for the housing market, stronger economic growth and an improved labor market should be enough to offset them.

So who’s right? Neither? Both? No one knows for sure. Remember, at the beginning of the year, analysts were predicting mortgage interest rates close to six percent by the end of this year and yet they still hover just below five percent.

The reality is anything could happen…which should make for an interesting year. See ya on December 31st…2011.

Tags: housing market, mortgage loan market, predictions, housing prediction, mortgage interest rates, foreclosures, economic growth, underwater mortgages, housing prices