MBA: Foreclosures, unemployment to peak next year

SAN DIEGO — Foreclosures will peak by the end of next year and unemployment will climb above 10 percent as the housing market and U.S. economy grapple with the aftermath of the recession, the Mortgage Bankers Association’s chief economist said Tuesday.

Jay Brinkmann’s forecast, released at the trade association’s annual convention and expo in San Diego, envisions a slowly growing economy and improving housing market, with home price declines abating and fixed mortgage interest rates remaining below 6 percent.

But the strength of any rebound will hinge on whether consumers — many still concerned about job security — will ramp up spending, the economist noted.

“The recession is behind us but the effects of the recession will linger for some time in the form of higher unemployment and lower levels of business investment and home construction,” Brinkmann said.

The economist forecasts economic activity will slow again in the first half of next year but pick up in the second half. That won’t be enough to slow unemployment, which is expected to peak at 10.2 percent by mid-2010 and not fall below 8 percent until late 2012.

At a panel session on Monday, Freddie Mac CEO Charles Haldeman Jr. noted that the speed at which businesses are rehiring is lagging. Unemployment is the main reason homes are now being lost to foreclosure, as borrowers struggle without income and lenders are left with fewer options for reworking troubled loans.

Haldeman stressed that lenders’ efforts to modify mortgages to help stave off foreclosure must continue, despite some signs this year that the housing market is stabilizing.

“I think it would be a real mistake for the industry to take some of the glimmers of hope that some might be pointing to in terms of housing prices and housing activity and reduce our efforts,” he said. “I think we ought to assume that there’s no improvement, that we don’t have enough certainty about what might happen.”

Many lenders have issued a moratorium on foreclosures, causing a drop in the number of discounted, bank-owned properties hitting the market this year. But some economists expect that a wave of foreclosed properties could hit the market in 2010, dampening home prices again.

Those delayed bank-owned properties aside, rising unemployment will lead to a growing number of foreclosures at least through the end of next year, Brinkmann said.

Foreclosures have helped power sales in many ravaged markets, particularly in the West and Florida.

“We still see a concentration in the lower end of the market,” Brinkmann said. “The entry level homes are in demand.”

Brinkmann forecasts home resales will increase by about 11 percent over 2009 levels. He sees sales of new homes, which bottomed out in the first quarter of this year, climbing about 21 percent.

The forecast calls for median home prices for existing homes to decline in the next two quarters, reaching $164,200 in the first quarter of next year.

David Stevens, commissioner of the Federal Housing Administration, echoed that outlook while speaking on a panel of government executives on Monday.

“We’re forecasting about another 10 percent, roughly, price decline between now and the first quarter next year,” he said.

Mortgage rates, meanwhile, will average about 5 percent through the end of this year, then rise to 5.6 percent by the end of 2010. That should help fuel a 12 percent increase in home mortgages next year, but home refinancing will decline as mortgage rates edge higher, he said.

“We’re assuming, in a sense, weak or little inflation here,” Brinkmann said.