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October 21, 2007

Bankers Say More Mortgage Contraction Ahead

Members of the Mortgage Bankers Association meeting at their annual convention in Boston heard predictions from the organization’s chief economist that mortgage originations will fall 18 percent in 2008 and another 6 percent in 2009.

"We have not yet seen fully the impact of the credit shock to the U.S. and world economies, and the severity of that impact will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle," MBA chief economist Doug Duncan told reporters in a preview of his Wednesday convention speech.

The MBA expects sales to hit bottom in the third quarter of next year, after existing-home sales decline a projected 12 percent this year to 5.72 million units sold. Existing-home sales are expected to decline a further 10 percent next year before growing by 5 percent in 2009.

The MBA forecasts a 2 percent home price decline both this year and next year, with prices flattening out in 2009.

With the current glut of homes for sale, "any significant increase in homebuilding is probably years off," Duncan said.