Forecast: Residential investment to continue slide

MBA expects growth to pick up, returning to growth of about 3.25 percent over the course of 2008 and through 2009. MBA also forecasts total residential mortgage production in 2007 to be $2.39 trillion.

“Residential investment is expected to decline further through the first half of 2007 but at a diminishing pace,” said MBA Chief Economist Doug Duncan in a news release. “Economic growth should accelerate later this year to a trend-like pace as the drag from the housing sector wanes.”

Duncan, who also is MBA’s senior vice president for research and business development, noted that long-term interest rates have remained historically low, following two years of monetary tightening.

“Consumer spending growth is robust, helped by solid stock market gains, declining oil prices and healthy wage increases,” he said. “The trade sector has also begun to turn around, contributing to economic growth.”

Duncan expects that the federal funds rate will remain steady near 5.25 percent through the forecast period. Incoming data suggesting that economic activity improved gradually in the past month has caused the financial market to pare down expectations of an easing in the first half of this year, resulting in an increase in long-term rates.

Long-term rates are expected to rise modestly this year, helping to cushion the decline in residential housing activity that will continue through at least mid-2007.

The continued health of the labor market also factors into the forecast.

“Employment continues to expand, with payrolls increasing at an average monthly pace of 135,000 in the final quarter of last year,” Duncan said.

“We are optimistic that core inflation will continue to decelerate slowly, moving within the comfort zone later this year,” he added.

Other key points of the forecast:

• Real GDP growth will average about 3 percent in 2007, 3.3 percent in 2008 and 3.4 percent in 2009.

• The unemployment rate will increase from the current level of 4.5 percent to 4.9 percent by the end of 2007 and remain around that level through 2009. The labor market is expected to add an average of 100,000 to 120,000 jobs monthly over the next 12 months.

• Fixed mortgage rates are expected to rise to about 6.5 percent by the end of 2007 and to remain about that level through the forecast period.

• Total existing-home sales for 2007 will decline by about 7 percent compared to 2006. New-home sales will decline by about 8 percent from 2006. Both types of home sales are projected to rebound in 2008 by about 3 percent and increase by about 1 percent in 2009.

• Existing home price appreciation is expected to slow significantly over the next three years. Median prices should remain relatively flat for both new and existing homes.

Price gains in 2008 and 2009 are expected to be about 2 percent.

• Total residential mortgage production in 2007 will be $2.39 trillion – declining by about 5 percent from an estimated $2.51 trillion in 2006.

Total mortgage originations should decline an additional 4 percent to $2.29 trillion in 2008 and drop another 6 percent to $2.15 trillion in 2009.[[In-content Ad]]