Fannie Mae sees Growth Expanding, Downgrades Loan Origination Expectations

Fannie Mae said on Thursday that real economicrngrowth in the last two quarters of 2014 appear poised to exceed 3.0 percent,rnproviding a solid basis for growth in 2015.  However the housing recovery will remain “choppy.”rn</p

The October Economic and Housing Outlook published by Fannie Mae says reduced fiscal uncertainty and slowingrnmonetary intervention has enabled momentumrnin the private sector tornbuild while total government spending no longerrndeclined.  Those government cutbacks had beenrnmasking improvement in the private economy. Housing contributed to growth as well,rnrebounding strongly in the second quarter from sharp drops in the previous twornquarters</p

The company’s Economic and StrategicrnResearch Team, headed by Doug Duncan, chief economist, see a variety of globalrnfactors slowing growth and raising some risks than may keep the Federal Reservernon the side of caution.  Thus interestrnrate policy may not change until the third quarter of next year.  </p

Economics took a toll on housingrnactivity from late 2013 into 2014 as house prices rose by an inflation-adjustedrn8 percent and interest rates rose in what the Outlook calls “the Taper Tantrum of mid-2013.”  Then there was the coldest winter since thernlate 1970s which prompted very weak housing numbers in the first quarter ofrnthis year. </p

Recent activity has been mixed. July saw the strongest pace in housing starts in more than six years before they posted the sharpest drop in over a year the very next month, largely driven by the multifamily sector.  Year-to-date through August both single-family and multifamily starts were running above their year-ago levels by 3.1 percent and 20.7 percent, respectively. However, single-family permits were running below their levels during the first eight months of last year.</p

Existing home sales fellrnslightly in August after four straight months of gains and by the end of Augustrnwere at a pace 5.6 percent below the year-to-date rate a year earlier.  August pendingrnhome sales also dropped, suggesting<blimited near-term gains</band mortgage applications havernremained lackluster.rn</p

On a positive note, new home sales jumped by nearly 20 percent in August and builder confidence rose to itsrnhighest point during the current expansion. rnConsumer attitudes also improved; the share of consumers who say it isrnnow a good time to buy a home gained 4 percentage points to 68 in the AugustrnNational Housing Survey and 66 percent of respondents said they would prefer tornbuy a home the next time they moved, a gain of two points. </p

Homernprices are also continuing to moderate from the pace of a year ago althoughrnthey are still rising, largely due to lack of supply both from new constructionrnand diminishing numbers of distressed homes.  rnThese rising prices have improved the equity position of homeowners and thernshare of the equity owner occupants hold in real estate has risen for 12rnconsecutive quarters to 53.6 percent in the second quarter of 2014, the highestrnit has been since early 2007.  Equity hitrna low of 36.7 percent in the first quarter of 2009. At the end of the secondrnquarter of 2014, 10.7 percent (nearly 5.3 million homes) were in negative equity, with nearly 1 millionrnhomes regaining positive equity during the quarter.</p

FanniernMae expect that mortgage rates will rise only gradually from the 4.12 percent quotedrnfor the 30-year fixed mortgage during the week ended October 9 to 4.7 percentrnby the end of 2015.  The company’srneconomists have also made few changes to their forecast of housing activityrnwith total home sales expected to fall about 3.0 percent this year from 2013rnlevels.  They expect that improving laborrnmarket conditions, low rates, and rising inventories will boost new home salesrnnext year by about 5 percent while new home construction will remain limited.  Housing starts will increase from about 1 millionrnunits projected this year to 1.17 million next year.</p

Arnnew benchmark for loan originations has caused an upward revision of Fannie Mae’srnestimate of purchase originations for 2013 and a downgrade of the estimate forrnrefinancing originations.  On the netrnestimate of total originations that year was revised downward by $47 billion torn$1.87 trillion.  Fannie Mae also lowered projectedrnoriginations for 2015 and now anticipates a decline of 8.0 percent from thern2014 estimate to $1.01 trillion in 2015 and the refinance share to drop to 30.0rnpercent in 2015 from a projected 39.0 percent in 2014. 

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