Housing to Continue in Recession with Loan Volume Slipping: iEmergent

Residential mortgage lending volume in the U.S. will fall below the $1 trillion mark in 2011, becoming the fifth year of what is emerging as a ""lost decade"" for the housing[IMAGE]

and home financing industries, according to new projections just released by ""iEmergent"":http://www.iemergent.com, a Des Moines, Iowa-based market research firm for the mortgage and real estate sectors. The company warns that slow growth is also expected for 2012 to 2015.

According to ""iEmergent's national forecast"":http://www.iemergent.com/press.cfm?news_id=14, home purchases next year will tally 2.62 million loans for $490.9 billion. The company's analysts put the 2011 refinance range at 2.18 million loans for $412.9 billion (low) to 2.63 million loans for $499.8 billion (high).

Altogether, iEmergent estimates total mortgage volumes for the 2011 calendar year will fall within the range of $903.8 billion to $990.7 billion.

""These projections indicate that housing and home financing will continue in recession,"" iEmergent said in its report.

The company’s 2011 projections represent a 17 percent decrease in total origination volume from end-of-year 2010 volume estimates. iEmergent says the decline is mainly due to a 29 percent drop in projected refinances from 2010 to 2011, while home purchases are expected to drop only slightly by 0.5 percent.

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According to IEmergent’s analysis, 38 percent of all U.S. households are no longer part of the 2011 pool of potential homebuyers who might be eligible, able, and willing to purchase or refinance a home.

As a result of the 2007-2010 economic collapse, the company says the total available homebuyer pool has been reduced to levels similar to those from 1995 â€" a key factor in the firm’s weak 2011 forecast.

“The home financing industry is now caught in a serious _‘demand trap,’_ a negative feedback loop of economic and behavioral deflation,” said Dennis Hedlund, president of iEmergent. “Similar to the _liquidity trap_ that spawned it, mortgage rates have reached unprecedented low levels, yet purchase money mortgage demand languishes as prime homebuyers are trapped by cumulative downward economic and job pressures.”

According to Hedlund, without real growth in consumer demand, which is also tied to real growth in jobs and the re-employment of millions of Americans, the _demand trap_ will be very difficult to escape.

“Refinance demand may pop up for brief periods, but elevated volumes will be unsustainable and will diminish over time as the remaining household pools shrink faster than they can be replenished. Demand can’t be created from households that can’t buy,” Hedlund said.

iEmergent’s forecasts suggest that 2011-2015 will create considerable market and volume risks for lenders of all sizes, especially those that have been relying heavily on refinance transactions for the past two years.

Additionally, Hedlund warns that “without evidence-based intelligence that quantifies the shifting growth and behavior of lending opportunities in individual markets and communities, lenders face the very real prospect of falling into a self-induced, long-lasting and potentially debilitating _‘performance trap,’_ a cycle of stagnation that loses customers, thwarts recovery, and leads to chronic underperformance.”