Second Mortgage With No Equity
A Damper Housing Market
We at S&P expect mortgage rates to continue rising over the rest of this year and dampen home sales further. House price appreciation continues to soften, which is indicative of the below-peak demand, in our opinion. Builders are likely holding their asking prices back to sell units. Also, new home price appreciation would likely be even weaker if the data could factor in incentives and upgrades, which are also supporting the current pace of sales.
We now see a 35% chance of recession in 2007, due to heightened tensions in the Middle East.
Fundamental Outlook
S&P equity analysts project second-quarter operating earnings for the S&P 500 to advance 12%, vs. their June 28, 2006, growth estimate of 9%. Full-year 2006 earnings are now projected to rise 13%, compared with the earlier forecast of 12%.
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Housing market stays in step with predictions
Eight months into 2006, the housing market appears to be doing exactly what real estate industry economists predicted at the beginning of the year.
In some cases, however, the economy overall isn't meeting expectations, and that has something to do with the softening of the real estate market.
In a conference call with real estate writers, Fannie Mae chief economist David Berson said that recent data showed the economy moderating in the second quarter, well below estimates, and that it has forced him to lower his forecast of 3.5 percent growth, to 2.5 to 3 percent.
"We continue to expect economic growth at or below trend in the second half of the year, as a result of continued high energy prices, the lagged effort of tighter monetary policy, and a drop in the housing market" with fewer sales and slower price appreciation, which will reduce mortgage-equity withdrawals, Berson said.