Freddie's Economic Revisions Optimistic For Housing
February 20, 2015
US Housing Outlook
July 9, 2014
One of the foremost economists covering the housing market is Celia Chen with Economy.com. Over the next three issues we will be covering her latest U.S. Housing Outlook, just released.
Here is a summary of her key projections:
• As employment conditions improve, pent-up housing demand will be released.
• Home sales will remain at 5.5 million this year and accelerate to 6.4 million in 2015.
• Credit remains tight, but mortgage lenders are expected to ease in coming months.
• A smooth recovery depends on the Federal Reserve’s ability to manage interest rates higher.
• The U.S. housing market will rebound in the second half of this year and will strengthen further in 2015.
• Demand will pick up, and a slender inventory of desirable homes for sale and tightening rental markets will jump-start residential construction. Strong demand will keep house prices appreciating.
• A healthy housing market has substantial positive downstream effects on the broader economy.
• Homebuilding drives job growth, while homebuying and growing housing wealth drive consumer spending.
• Rising house prices also benefit credit quality. Gains in sales and property tax revenues help fill state and local government coffers.
• These forces will boost overall economic growth, which will in turn fuel stronger demand for housing.
Rising Rates, Harsh Winter
“U.S. housing looked disappointing through early spring, as rising mortgage interest rates and then a harsh winter dampened demand. The pace of new- and existing-home sales tumbled from an annualized 5.7 million units in July to 5 million at the beginning of this year. Sales have been flat since January, with the April numbers offering scant signs of acceleration.”
“The retreat of institutional investors who had propped up home sales for several years also weighs on home sales. RealtyTrac reports that the institutional investor share of home sales dropped to 5.6% in the first quarter, the lowest level since the first quarter of 2012. Rising house prices and the shrinking inventory of distressed homes slowed investor sales.”
“Concurrently, first-time homebuyers failed to enter the market in expected numbers. The National Association of Realtors reports that first-time buyers purchased 29% of existing homes last year, compared with 40% prior to the housing correction.”
“Employment growth has picked up, with the economy adding well above 200,000 jobs per month on average in the last five months, a pace comparable to that in past expansions. Increased employment will enable more people to form their own households.”
Next issue of Economic Focus will feature Part II, covering cover Young Adults and First-time Buyers.