The residential and commercial real estate markets will stabilize over the course of 2012, according to projections from Fitch Ratings.
While the markets will continue current trends at first, the firm's analysts say that is partly a result of current events playing out. For example, multifamily delinquencies are expected to rise at first, due to legacy deals with poorer-quality borrowers, rather than because of flaws in new activity.
Newly originated mortgages, on the other hand, will begin to drive improvement as they benefit from stronger credit and superior underwriting, slowly raising the low outlook. The firm does not predict significant ratings downgrades, although unemployment may keep the commercial office real estate markets fluctuating due to the effect on vacancy rates.
Analyst Grant Bailey did note that rising unemployment coupled with a 15 percent or larger drop in home prices could lead to a downgrade of AAA bonds. Even in that event, they are not expected to default, however, and those two events are not necessarily expected to occur.
The firm's report indicates it expects 2012 real estate data to be marked by low private-label issuance of mortgage-backed securities, partly due to regulatory uncertainty. If the regulatory situation becomes more clear, then the outlook in that area may become stronger.