PMI Slashes 2010 Home Sales Forecast

Written by: Steve Cook   Fri, July 16, 2010 Beyond Today's News, featured

PMI, the leading mortgage insurance company, has cut its forecast for increased 2010 sales by more than half after housing hit a wall in May following the end of the homebuyer tax credit.

Existing home sales will climb by only 2.9 percent to 5.31 million units and new sales by 9.4 percent to 409,000 units said PMI in its July Housing and Mortgage Market Review.  Previously PMI forecast existing sales would be up 6.1 percent  ro 5.47 million units this year and new homes 16.6 percent to 436,000 units. 

“The expiration of the second tax credit has hit housing activity hard, after having drawn sales forward into March and April. Moreover, all of the near-term leading indicators of housing activity suggest no pickup in coming months (and perhaps even additional declines). Directionally, however, this should not have been a surprise to anyone - although the magnitude of the falloff is larger than we expected,” said PMI.

A rebound is possible in the balance of the year, with continued job growth, record low mortgage rates, and improving demographics.

But PMI now doesn’t see a faster sales pace until 2011.  A stronger economy and improving demographics, will resulting in a rise in existing sales of 8.6 percent (to 5.76 million units) and new sales of 48.7 percent (to 608,000 units).

Prices will change little over the balance of this year before climbing modestly by nearly 2.0 percent next year. Short-term interest rates will also stay unchanged for the rest of 2010 as the Fed keeps monetary policy unchanged. By the end of the year, PMI projects yields on 10-year Treasury notes to climb only to around 3.60 percent. In 2011, however, if the economy rebounds as we expect, then the Fed will begin to tighten monetary policy in order to reduce the chances that the liquidity it has added in recent years will lead to inflation and/or asset bubbles. A hike in the federal funds rate of 150-200 basis points is likely over the first 12 months of tightening.

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