MBA Forecasts Negative Economic Growth through First Half of 2009

By Anuradha Kher, Online News EditorWashington, D.C.–Economic growth in the second half of 2008 will be negative and remain negative through the first half of 2009 before a modest recovery, according to the latest economic forecast released by the Mortgage Bankers Association (MBA). MBA expects growth to pick up strongly by the end of 2009 and over the course of 2010. The total residential mortgage production in 2009 is expected to be $1.67 trillion, down from an expected $1.86 trillion in 2008 and $2.3 trillion in 2007, according to MBA’s forecast.”A recession appears to be underway, as evidenced in rising unemployment, contracting manufacturing activity and declining inflation-adjusted consumption spending,” says Jay Brinkmann, MBA chief economist and senior vice president for research and economics. “Credit markets continue to be dysfunctional and the recent intensification of the credit crunch is hitting an already weakened economy. We expect residential investment to decline further through the first half of 2009, due to the excess supply of houses and weakened demand from the recession. “Unemployment will likely accelerate,” Brinkmann adds. “By the end of next year, the unemployment rate will probably be around 7.7 percent and remain elevated through most of 2010 before heading down again.””The rates on fixed-rate mortgages have picked up recently to near 6.5 percent in response to policymakers’ programs for banks recapitalization and insurance of financial institutions. We expect long-term rates to decline from their current levels as massive liquidity injections by central banks around the world and other policy actions work through the system and demand increases for long dated debt,” Brinkmann says.The 30-year fixed-rate mortgage yield should trend modestly lower, averaging 6.0 percent in the current quarter and remaining near that level through 2009, before trending up modestly in 2010 as the economy gets stronger, according to MBA. Key points of the latest MBA forecast include:Total existing home sales for 2008 (including multifamily) will end up about 13 percent below those for 2007. Existing home sales are projected to rebound slightly in 2009, increasing by about three percent. Sales should increase by about six percent in 2010.New home sales for 2008 will be down by about 36 percent relative to 2007.  Sales are projected to bottom in the second half of 2009 and rebound modestly in the second half.  For all of 2009, new home sales should post a decline of about 12 percent. Sales should increase by about 25 percent in 2010.