Grim Year Ahead for Housing Sector

By Kyle Chezum Updated on 3/23/2011

Fannie Mae released its Economic Outlook report, and the news for housing isn't much improved just yet.  While economists debate the strong possibility of a double dip in home prices, the government mortgage holder reported a continued drop in total mortgage applications on a monthly basis.  January brought a 7.9% decrease in applications, while February added another 3.3% decrease.

The report highlighted a much bigger point of concern, though.  Shadow inventory.  With far too many homes available and more and more properties hitting the distressed market, home prices are continuing to drop and it's becoming increasingly difficult to shift capital and equity in and out of properties.

Fannie Mae reported an increase in existing home sales, but concluded that this was likely due to some of those distressed properties being picked up.  As a trend, far too few of them have been purchased to have a significant positive impact on the housing sector at large.  "Sales of existing homes have risen during five of the past six months, and in January were up by 39% since reaching their cycle's low last July," Fannie said in its report.  "However, the bulk of the gain has come from distressed sales."

The report went on to highlight the underlying trends in the housing sector, concluding that outlook isn't healthy for the industry yet.  "Underlying trends in homebuilding activity remain weak," Fannie Mae stated. "Total housing starts rose sharply in January solely from a surge in starts in the volatile multifamily sector. Single-family starts fell to the lowest level since May 2009."

The new year, which is swiftly looking more and more like the old year, has lost a lot of its optimistic momentum.