2011 looks to be promising

Gazing into their crystal balls, economic experts see a better housing and mortgage market coming in 2011.

Economists clearly see low home-loan interest rates, rebounding home prices and more job creation leading to a gradual recovery in the second half of the year, according to a new year-end economic outlook by Freddie Mac.

As in the past, key macroeconomic drivers of the economy such as income growth, unemployment rate, and inflation will affect the performance of the housing and mortgage markets in 2011, said Frank Nothaft, vice president and chief economist of Freddie Mac.

With fiscal policy supporting aggregate demand for goods and services and an accommodative monetary policy providing low interest rates and ample liquidity to capital markets, the economic recovery should accelerate gradually over the year, with the second half of 2011 exhibiting more growth and job creation than the early part of the year, Nothaft said.

According to Freddie Mac, the following features will likely characterize the 2011 housing and mortgage markets:

Low mortgage rates. While some rise in fixed-rates is expected, 30-year fixed-rate loans are likely to remain below 5 percent throughout the year, and initial rates on 5/1 hybrid ARMs will likely remain below 4 percent in 2011.

In November of 2010, fixed-rate mortgage rates had drifted down to their lowest level since the early 1950s, Nothaft said. This laid the foundation for a substantial refinance boom, with refinance accounting for four out of every five single-family home loan applications.

With Federal Reserve observers expecting the central bank to keep the federal funds rate at its current target range of zero percent to 0.25 percent for most or all of 2011, relatively low mortgage rates will be a feature of next years mortgage market, according to Freddie Mac.

House-price recovery. Home prices nationwide are close to hitting bottom. Most experts look for single-family U.S. indexes to bottom out in the first half of 2011, with a gradual but sustained recovery after that, Nothaft said. Prices are expected to rise by an average of about 1 percent over 2011, according to the Federal Housing Finance Agency.

However, 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.

Home-buyer affordability. Next year should be very good for first-time buyers to shop. The three main ingredients that affect buyer affordability are mortgage rates, house prices, and income, Nothaft said. With the first two at or near cyclic lows, buyer affordability is at the highest level in decades.

The National Association of Realtors Affordability Index for the third quarter reported one of the most affordable buying markets since the inception of the index in 1971.

With affordability high, many first-time buyers will be attracted to the housing market in the new year, likely translating into more home sales in 2011 than in 2010, Nothaft said.

Lower delinquency rates. Single-family home mortgage delinquency rates remain extraordinarily high but have begun to decline in the aggregate. Based on the last several business cycles, the share of loans 90-or-more days delinquent or in foreclosure proceedings, known as the seriously delinquent rate, generally crests within a year of the start of the recovery in payroll employment, and this economic recovery appears to fit within that pattern.

Payrolls began to rise last January and by the spring the seriously delinquent rate had begun to decline, Freddie Mac said.

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, Nothaft said.

Don DeBats weekly real estate column is syndicated by DeBat Media Services. For more home-buying information visit his website at: www.dondebat.net.

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Originally reported by Chicago Journal. Read the original story here.

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