2010 is predicted date for housing recovery

Expect '08-'09 to be 'tough,' Mudd says

April 30, 2008|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN REPORTER

The head of mortgage financing giant Fannie Mae said yesterday that he doesn't expect to see "some recovery and growth" in the housing market until 2010.

"We think at Fannie Mae that '08 is going to be a tough year, kind of a continuation of the end of 2007; '09 will be similar," said Daniel Mudd, the company's president and chief executive, who spoke at a business journalism conference in Baltimore.

Fannie Mae, which buys and repackages loans to sell to investors, claims about half the market for newly issued securities backed by single-family homes.

Forecasting the bottom of the housing slump is a tricky business, with the many conflicting predictions by economists as proof, he added. He said he has seen recent improvement in the capital markets, which play an important role in the mortgage products and rates that borrowers can get, but a housing-price index released yesterday showed accelerating declines across the largest metro areas.

"I think the reality of it is that nobody knows where we are right now," Mudd said. "This is terra incognita."

Almost all the 20 metro areas measured by the Standard & Poor's/Case-Shiller home price index posted declines in February compared with a year earlier, S&P said yesterday.

Seventeen saw the biggest decreases since their inclusion in the index, which began in 1987 and expanded in later years. In Washington, the metro area on the list closest to Baltimore, prices fell 13 percent.

On Monday, the Census Bureau said the number of empty U.S. homes for sale hit a record in the first three months of the year - 2.9 percent of all owner inventory, or nearly 2.3 million. Meanwhile, the U.S. homeownership rate has been steadily falling, Census said. At 67.8 percent, it's down to 2002 levels.

Metrostudy, a data provider that tracks 40 large new-construction markets across the country, released local statistics that might seem more heartening. Homebuilders in the Baltimore metro area have reined in the inventory of new homes to "healthy" levels, said Kenneth Wenhold, a Metrostudy regional director who follows Maryland and Virginia. The company's first-quarter analysis found that it would take 7.2 months to sell the available single-family homes and townhomes at the current pace, compared with 21.4 months in San Francisco, he said.

"Our market is actually one of the more stable," said Wenhold, who thinks the area will improve before 2010.

But there's more inventory languishing on the resale side, a much larger part of the housing market, he noted. At the current pace, it would take 10 months to sell all the existing homes that were on the market in the Baltimore metro area in March, according to Metropolitan Regional Information Systems Inc. Local home sales in March were down 40 percent from the nearly 3,200 sold two years earlier.

Mudd, who spoke at the Society of American Business Editors and Writers' annual conference, said he'll need to see sales improve and prices stabilize before he'll feel more confident about the U.S. housing market.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp., who also spoke to the group, said the country should not discount the impact of rising foreclosures. As banks take back homes, they're adding to the number of properties on the market. She advocated an increased pace of loan modifications to help people who cannot afford their mortgages, which she said would indirectly aid other homeowners feeling the ripple effect of declining prices.

"It's getting worse ... ," she said of the vicious cycle that falling prices and rising foreclosures create. "I think more active government intervention is required now."

jamie.smith.hopkins@baltsun.com

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