Fannie Mae sees slight housing market improvement

Fannie Mae’s latest market outlook continues to call for a “modest improvement” in housing activity this year, although the prevalence of distressed properties on the market has led to renewed weakness in home prices and the industry’s shadow inventory looms large.

Fannie Mae signThe GSE’s chief economist notes that as the economic recovery approaches its two-year anniversary in June, housing has not yet contributed to economic growth in any meaningful way and is significantly underperforming compared to previous market recoveries going all the way back to 1954.

Doug Duncan says since the start of the current recovery, real residential investment growth has been weak compared to that of previous recoveries.

After the boost from the homebuyer tax credit in the second quarter of 2010, real residential investment dropped below the level observed at the start of the recovery and dropped to a record low of 2.2 percent of GDP during the first quarter of this year, Duncan explained. Its recent peak was more than 6 percent of GDP at the end of 2005.

The D.C.-based GSE’s lead economist says while existing home sales have posted modest rebounds since the end of the tax credit, it’s important to note that distressed homes continue to account for a large share of sales, and that share has risen in recent months.

Home prices are showing renewed signs of weakness amid the rising share of distressed home sales, Duncan says, adding that the large price discounts associated with the rising distressed share also serve to depress appraisal values and can cause difficulties in the underwriting process.

The National Association of Realtors says its members in the field have reported that an increasing number of contracts are being cancelled because the appraisal came in below the price negotiated between buyer and seller.

Fannie Mae is forecasting existing-home sales to increase by about 6 percent this year over sales volume in 2010…

Read the rest of this article by DSNews.com: “Fannie Mae Sees Modest Improvement Ahead for Housing.”

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