Housing Outlook Hopeful as Labor Market Improves: Fannie Mae

It is a well-known fact that job loss is often the trigger that sends many borrowers into default and down the road to foreclosure. However, according to the February 2010 Economic Outlook released Friday by ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home, prospects for employment gains are improving, and as a result, the housing outlook is hopeful.

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Fannie Mae said the creation of over 500,000 jobs in January helped bring down the jobless rate. As a result, the unemployment rate, which is derived from a survey of households, declined from 10 percent to 9.7 percent in January, steadily falling from the 10.1 percent peak in October 2009. While the average unemployment rate is expected to remain at 9.7 percent throughout 2010, Fannie Mae predicts it will drop to 9 percent in 2011.

According to the Economic Outlook, leading indicators suggest recovery within the labor market is under way. The length of the workweek continues to rise from record lows in October 2009, and the number of part-time workers has dropped dramatically. In addition, the January employment report showed nonfarm payroll job losses trending down since peak losses in January 2009, and manufacturing payrolls increased for the first time since January 2007.

""The upswing in employment data means positive news for economic growth,"" said Doug Duncan, Fannie Mae chief economist. ""Better financial strength for households makes it easier for people to make mortgage payments and more likely that they'll buy homes.""

As part of its overall outlook for the economy, Fannie Mae released a housing forecast. On a year-over-year basis, total existing home sales are estimated to surge 10.6 percent in 2010 and an additional 9.8 percent in 2011. Home prices will likely decline 0.2 percent this year, but next year, prices are expected to jump 2.3 percent. The average interest rate for 30-year fixed mortgages is forecast at 5.37 percent in 2010 and 5.85 percent the following year, a notable increase from the 2009 average of 5.04 percent.

Overall, Fannie Mae believes economic growth will continue throughout 2010, but at a moderate pace compared to historical recovery standards.