Can the housing markets match last year's record-setting performance in 1997? A pair of surprising reports last week seemed to suggest so: New home sales jumped 14% in November from October's levels, while resales ticked up 1.8%.
But David Lereah, chief economist at the Mortgage Bankers Association in Washington, argues a slowdown is coming. He laid out his 1997 forecast in an interview last week.
Can housing markets this year keep up last year's pace?
LEREAH: Last year was just about a record year for housing - (with) record existing home sales of a little over 4 million (units), and new home sales the highest since 1978.
I don't think we can keep pace with that because I do think interest rates will be somewhat higher than in 1996.
What's your forecast for mortgage rates, home sales, and mortgage volumes in 1997?
LEREAH: For mortgage rates, I've got a very slow upward drift. Slowly, but surely, 30-year mortgage rates will go above 8%, and by the end of the year, I've got them at 8.15%.
For existing home sales, I've got a 5.5% contraction (from 1996) to 3.8 million units. And for new home sales, I've got an 8% contraction to almost 700,000 units.
I estimate 1996 mortgage originations at probably over $800 million. For 1997, I've got around $730 million.
How will higher mortgage rates affect consumers?
LEREAH: Even though I'm projecting they'll come up a little bit, interest rates are still relatively low from a historical perspective. So it should be a good year for consumers, but not as good as '96.
How will the shrinking market affect the profitability of mortgage lenders.
LEREAH: 1996 was a difficult year to really translate the robustness of the housing market into good, healthy profitability. Lenders are still working off excess capacity (from the refinance boom). Also, you had consolidations, and consolidations are costly. They take time to work out.
You had incredible investments in technology, which over time may prove efficient, but in the near term (could be) an added cost.
I see more of the same (in 1997.) As long as rates don't really go wild, I think this could be a better year for profitability. But the fiercely competitive marketplace is here to stay right now.