Freddie Mac Economist: Recovery is a Few Months Away

Frank NothaftThere have been positive signs in the last quarter regarding job losses, the financial markets and even the housing sector, but economic recovery is likely still a few months away, Freddie Mac’s chief economist said today. 
In an article titled, “Are We There Yet?” the outlook from Freddie Mac’s Frank E. Nothaft for 2010 is mostly positive, although there are cautionary flags ahead – particularly with  higher interest rates and the expiration of homebuyer tax credits.
Most economists will be looking at the aftermath from the government’s winding down of its purchases of mortgage-backed securities from Freddie Mac and Fannie Mae.
By discontinuing its purchase program in April, the central bank is hoping that private buyers of mortgage-backed securities will return, and rates won’t rise much after that. Investors in mortgaged-backed securities have stayed mostly on the sidelines.
 
“U.S. Department of the Treasury MBS purchases were completed by year-end, and Federal Reserve purchases of MBS and Freddie Mac and Fannie Mae debt are scheduled to terminate by the end of the first quarter 2010 – both potentially pose the risk of a rise in mortgage rates relative to benchmark yields,” Nothaft said.
Another potential strain on interest rates is the expiration of tax credits for home buyers. Under the federal program, home purchase contracts must be signed by April 30 to qualify for the tax credits.
“The tax credits have likely caused some families to purchase a home earlier than they might have otherwise, thus moving sales forward in time and helping support the housing market. High affordability and improved buyer sentiment further bolster sales,” Nothaft wrote.
So when will we get there?
“While there may be some bumps along the way, the transition into economic recovery appears to be underway as we head into 2010: real economic growth in the 3 to 3.5 percent range, a cessation of job losses in the first quarter, rising home sales, and a strengthening of housing starts in some markets,” Nothaft wrote “We should be ‘there’ in the next few months, if not already.”

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