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It will certainly take time to recover from what transpired in 2007. We are no longer in times of rapid home price appreciation spurring on significant refinance activity. The OFHEO National Home Price Index showed its first quarterly decline in 13 years during the second to third quarter in 2007. The yearly change stood at 1.8% from the third quarter in 2006, and we feel that by the third quarter in 2008, there will be about a 1% decline in value.
Therefore, we are modifying our home price forecast within our suite of prepayment models to reflect this outlook. Effective with the December 31, 2007 datafile release, our forecast will reflect a first year decline of 1%, a 0% change in the second year, a 1% growth in the third year, and a return to the long-term historical average of 4.5% per year in year four and forward. This forecast can be modified by the user to fit any alternative view. Please Note: this applies to v5.2c of the prepayment model only.
Andrew Davidson & Co realizes that there are many clients who need guidance in model use and reliability given the current market, and we are available to discuss the information presented above, or any other related questions that might arise. Please do not hesitate to contact us at 212-274-9075.
