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Freddie Mac Forecast: Housing Market Will Improve In 2011

Perhaps the most pressing question facing the real estate and mortgage industries is: When will the market rebound? Frank Nothaft, chief economist for Freddie Mac, recently released a optimistic forecast that envisions a gradual economic recovery this year, especially in the second half of 2011 when job creation picks up steam. Nothaft identified several trends that will likely boost the housing market in the coming months:

Low Mortgage Rates
With the Federal Reserve expected to keep the federal funds rate at between 0 percent to 0.25 percent for most (or all) of 2011, relatively low mortgage rates will be a feature of 2011. Thirty-year fixed-rate loans recently dropped to around 5 percent, and initial rates on 5/1 hybrid ARMs will likely remain below 4 percent.

House-Price Recovery
Those local markets that have relatively large inventories of for-sale homes and real estate owned (REO) dispositions will continue to see home-value weakness in 2011. However, price indexes for the U.S. as a whole are likely to bottom out in the first half of 2011, with a gradual (but sustained) recovery after that.

Homebuyer Affordability
The three main ingredients that affect buyer affordability are mortgage rates, house prices, and income. With the first two at or near cyclic lows, buyer affordability is at the highest level in decades. With affordability high, many first-time buyers will be attracted to the housing market, likely translating into more home sales in 2011 than in 2010.

Lower Delinquency Rates
Mortgage delinquency rates remain extraordinarily high but have begun to decline. Payrolls began to rise in January 2010, and by the spring the seriously delinquent rate had begun to decline. Look for the seriously delinquent rate in the overall market to gradually decline further during 2011, reflecting employment gains and family income growth, additional loan modifications and other foreclosure alternatives, and the transition of foreclosed homes to REO.

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