The housing market has bottomed out, according to the chief economist of the Mortgage Bankers Association of America.
David Lereah has updated his mortgage finance forecast for the balance of 1995 to reflect recent economic developments, and he predicts an increase in originations into 1996.
The economic indicators are mixed, Mr. Lereah said. June employment was stronger than expected, and the data were released a day after the Federal Reserve pushed rates down to prevent a recession.
Mr. Lereah said the employment data influenced him more than the Fed announcement.
Employment data are real, he said, and they suggest that the economy is not headed for a recession. More employment will translate into improved consumer spending, he added; sluggish spending has dragged down the economy.
He predicted that gross domestic product would prove to have been flat in the second quarter but would grow 3.3% in the fourth quarter, after a smaller increase in the third.
The increase should pick up lagging home sales, Mr. Lereah said.
The supply of unsold homes on the market is coming down, he said. That should spur housing construction this summer and, in turn, help the general economy.
Yet Mr. Lereah predicted that interest rates would rise in 1996 after remaining flat at their current level for the second half of 1995.
"Rates will go up slightly in 1996 because the economy will start to grow again," Mr. Lereah said. The Fed may tighten rates again next year to counter the growth, he said.
Mr. Lereah's forecast for 1995 activity is down slightly since his previous report. The reason, he said, is that the rate environment will reduce refinancing in the second half.
He predicted a pickup in originations during 1996, though he also predicted a rise in rates.
"Housing markets will be a little better off," he said. "I'm not saying there will be robust activity, but we bottomed out in housing and will make a comeback."
Mr. Lereah forecast that the interest rate for 30-year, fixed-rate mortgages would average 8% in 1995 and 8.15% in 1996. He pegged total originations in 1995 at $626 billion and in 1996 at $636 billion.
Refinancings will account for 20% of originations in 1995 and 16% in 1996, he forecast. Adjustable-rate loans will have a 38% market share in 1995 and 24% in 1996 for conventional purchase loans, according to the forecast.
He expects housing starts to total 1.3 million in 1995 and only slightly more in 1996.