Tuesday, January 15, 2008

The MBA is Projecting a Decline in Mortgage Originations in 2008

Unlike the National Association of Realtors, which sees the current housing market as a speed bump on the road to wealth for all through real estate, the Mortgage Bankers Association (MBA) seems a little more realistic in their projections for 2008 (although they appear to be too optismistic). The MBA has also noted one of the biggest risks that they face, the inability of banks to lend because of capital restrictions. From the WSJ Real Time Economics:

Fewer people will be obtaining mortgages this year than in 2007, with total mortgage production expected to drop 16% to $1.96 trillion in 2008, the Mortgage Bankers Association said.

If the projections hold, it would be the first time since 2000 that total mortgage originations fall below $2 trillion, the group said. “The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital,” said Doug Duncan, MBA’s chief economist, in a news release.

“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,” he 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,” he said. “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.” (If they are so well capitalized why is Citigroup, UBS, and Merrill Lynch looking for equity injections?)

The MBA’s forecast projects that economic growth will continue to slow through the first half of 2008, with economic activity picking up in the second half of the year. Employment growth has slowed significantly, high gasoline and food prices are “siphoning off purchasing power,” and home prices are falling, Duncan said, but the case for avoiding recession is still plausible.

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