Fannie Mae Economists Expect Housing Recovery to Continue

Fannie Mae’s economists arernpredicting continued slow growth in the second half of the year.  The first half was marked by improvements inrnsome economic sectors offset by declines in others.  The economists report said they continue tornsee “downside risks that outweigh possible upside surprises, as the economyrnlimps along.”</p

Weak growth in the second half ofrnthe year will be supported somewhat by consumer spending and, to a lesserrnextent, by business and residential investment. rnNegatives include federal, state, and local governments, trade declinesrnespecially in the Euro zone and China, a slowdown in manufacturing, andrnbusiness investment in equipment and software.</p

Consumer spending will remain thernprimary driver of economic growth with both nominal income and nominalrndisposable income increasing 0.3 percent while nominal spending rose 0.4 percentrnas did real consumer spending, the biggest increase in that category sincernFebruary.</p

Despite the “challenging backdroprnof the overall economy” Fannie Mae’s economists expect the housing recovery tornpersist.  According to the August FanniernMae National Housing Survey, consumer attitudes toward the housing marketrnremain positive.  Even while the numberrnof respondents who said the economy was headed in the wrong direction increasedrnby 2.0 points to 60 percent, respondents who thought it was a good time to sellrna home reached the highest level in over two years.   Thernsurvey also showed expectations for home prices over the next six months increasingrnfor the tenth consecutive month.</p

Housing activity has improvedrnsubstantially over the past year and housing supply and demand are now betterrnaligned.  The inventories of both new andrnexisting homes have been trending down but remain someone elevated over what isrnconsidered to be normal levels.  Thernsupply/demand equilibrium has been driven more by factors such as a drop in newrnhome supply because of the extraordinarily slow pace of homebuilding activityrndating back several years and a slowing of foreclosures because of increasedrnmodification efforts than by a pickup in demand.</p

Increased construction activityrnhas been concentrated in the multifamily sector where construction comparesrnfavorably to that in previous recoveries. rnThis construction has been caused by increasing demand for rentalsrnbecause of credit tightening for mortgages, declining homeownership rates, andrnpersons moving out of homeownership because of economic problems.  </p

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Sales of both new and existingrnhomes increased in July and year-to-date new home sales in July were 22 percentrnhigher than a year earlier, the recent trough for such sales.  Existing home sales have increased 9 percentrnon an annual basis, the best showing since 2007.  </p

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Several home price measures</ashowed home prices continuing to climb during the second quarter and severalrnindexes hit a seven-year high.  Therneconomists said they expect price increases to slow in the fall and winter butrnif current trends continue they anticipate the market bottom was reached earlierrnthis year. </p