The Roller Coaster Ride Continues

As we look at trends for this New Year, one word seems to keep recurring: change. Here are some of the trends and changes we’ll all be watching this year.

FHA
While FHA loan volume continues to be strong, its performance continues to weaken. Policy changes announced earlier this week are intended to help the FHA better manage their portfolio. Announced changes include increasing MIP rates, updating the combination of FICO scores and down payments for new borrowers, reducing allowable seller concessions from 6 percent to 3 percent and increasing enforcement on FHA lenders.
Are more changes to come? Time will tell. Stay tuned for a more detailed look at FHA’s policy changes in the February Informer.

Volume
Expect to see a return to 2008 levels, as the refinance boom of 2009 subsides. Originations increased in 2009 to an expected volume of ~$1.8 trillion due to a strong refinance year. 2008 had an overall mortgage origination volume of ~$1.5 trillion, with a close balance between refinances and purchases.

Rates
Rates continue to be favorable, hovering around 5 percent. With Treasury (December 2009) and the Fed (expected in March 2010) exiting the buying of GSE debt and mortgage-backed securities, expect to see a boost in interest rates. Watch to see if the GSEs, or other investors, enter the market to buy these mortgage-backed securities, which would help keep rates low. Freddie Mac has predicted that rates will increase to 6.0 percent by the end of 2010.

Home Values
On a national level, home values will continue to decline, but at a much slower rate than in the past. It’s a mixed bag at the local level; some markets have started to see a rise in values, while others continue to see a decline.

Unemployment
The unemployment rate peaked in October 2009 at 10.2 percent and ended the year at an even 10 percent. In 2010, the unemployment rate could climb even higher; it’s expected to stay in double-digits throughout the year.
Note that reported unemployment numbers do not include individuals who are no longer receiving unemployment compensation and have given up on the job search. So, the actual number of people not working is actually higher than what is reported.

Consumer Confidence
The consumer confidence index has been on the rise after a record low of 25 in February 2009. The index rose in both November and December 2009. Consumer confidence is expected to
stabilize, if not to continue to rise, as U.S. economic growth resumes—albeit at a historically slow pace in 2010.