The Mortgage Bankers Association (MBA) projects that economic growth will continue to slow through the first half of 2008, but expects economic activity will begin to pick up in the second half of 2008 and resume trend-like growth toward the end of 2009.
Total mortgage production will be down 16 percent to $1.96 trillion this year from a projected $2.34 trillion in 2007, according to the MBA. Total originations should see a further drop of four percent in 2009 to $1.88 trillion.
"The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital. Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed," said Doug Duncan, the MBA's chief economist and senior vice president for research and business development.
"We expect housing starts and home sales to continue to trend down and reach bottom around the end of the third quarter 2008," Duncan said. "Fortunately, the banking system entered the current credit crunch well capitalized, so the danger of a sharp and widespread contraction of credit availability does not seem imminent. The recovery period in financial markets may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year."
Duncan noted that employment growth has slowed significantly since early in 2007.
"High gasoline and food prices are siphoning off purchasing power. Home prices are falling and will likely continue to decline," Duncan said. "The case for avoiding recession, however, is still a plausible one. We expect housing starts to hit bottom before the end of 2008. Since they have already fallen nearly 50 percent from peak levels, the drag on GDP growth will diminish as the year goes on. Net exports, meanwhile, should continue to increase in response to relatively strong growth abroad and the impact of past declines in the dollar on our competitive position in world markets."
Mortgage bankers expect housing market to bottom out in third quarter
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