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Fannie Sees Slow Growth Through End of Decade

by devteam June 14th, 2013 | Share

FanniernMae’s Economic Outlook series continued its 2013 theme “Transition torn’Normal?'” in its June edition saying that four years into an expansion it appearsrnthe country may be well into a prolonged period of sub-par but sustainablerngrowth.  Fannie Mae’s economists say thatrnthey expect the annual growth rate between now and the end of the decade willrnaverage between 2.25 and 2.50 percent where the consensus of what wouldrnconstitute normal will likely be around 2.75 percent.  Thus growth will probably be a bit slowerrnthan the potential of the economy and if that proves incorrect it will likelyrnbe housing and energy development that drive it higher.</p

Therneconomists, Doug Duncan, Orawin T. Velz,rnand Brian Hughes-Cromwick,rnsay their intermediate term view has changed little since the beginning of thernyear; modest growth for this year before accelerating moderately next year, andrna durable recovery for housing with homebuilding and construction employmentrnreturning to normal around 1916. </p

Therernhave been some surprises, however with a more restrictive fiscal policy thanrnanticipated but more consumer resiliency despite the sequester, the end of thernpayroll tax holiday and tax hikes on higher earners and associated with thernAffordable Care Act.  Accelerated homernprices have helped to offset some of the economy’s negatives.</p

In the housingrnsector they see upward momentum building. rnHome sales, especially single-family sales, were at the highest level inrnApril since April 2010 and year-to-date sales were 26 percent above the samernperiod in 2012.  Fannie Mae’s forecastrncalls for steadily rising new home sales, reaching normal levels by 2016 whenrnthe ratio reaches 2.7 sales per 1,000 population.  This would mark a ten year process from therndownturn back to normal activity.</p

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Existing homernsales reached their highest level since mid-2009 in April but housing startsrnfell sharply, primarily because of the volatile multifamily sector.  Housing permits jumped to a 1 million annualrnpace and home builder confidence rebounded in May after three consecutivernmonthly drops with an especially strong gain in the expected sales component.</p

Fannie Mae saidrnthat key to this view of a durable housing recovery is the turnaround in homernprices which seem to be accelerating their gains which are also widespread,rnrising in more than 90 percent of CoreLogic’s 100 metropolitan areas.</p

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The expectation of rising prices might entice potentialrnhomebuyers into the market and may signal better conditions to potentialrnsellers.  The National Housing Survey forrnMay showed a surge in consumer expectations for more price gains over the nextrn12 months and the share of respondents who viewed this as a good time to sellrnwas the largest since Fannie Mae began the survey. </p

Driving the higher prices have been both shrinkingrninventories of homes for sale and fewer distressed properties on the market.  April marked the first time that the share ofrndistressed home sales was below 20 percent since 2008.  Tight inventories may be easing, at least forrnexisting homes but the number of new homes available has only gradually trendedrnup since the record low of last summer.  </p

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This has created an opportunity for spec building whichrndominated the market prior to the housing crisis but dived to a trough inrn2010.  Those homes, built without arncontract with the buyer, are trending upward although they remain atrnhistorically low levels. </p

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Mortgage rates spiked in early June and have alreadyrnimpacted mortgage demand.  During Mayrnmortgage applications fell 6 percent but refinance applications were down 40rnpercent during the same period.  FanniernMae’s economists’ predictions for mortgage rates has jumped about 50 basisrnpoints since the May forecast with the yield on the 30-year fixed rate mortgagernexpected to rise to 4.7 percent by the end of 2014.  Despite this, they expect the housingrnrecovery to continue with housing starts and home sales rising in 2013 by 25rnpercent and 7 percent respectively.  Theyrnhave revised the estimate of last year’s mortgage production volume upwardrnbecause they may have underestimated the number of originations held inrndepository institution portfolios.  Theyrnalso raised the value of mortgage originations last year from $1.92 trillion torn$2.02 trillion.  This lifted therntrajectory for 2013 by about $75 billion to $1.74 trillion with a slightlyrnhigher refinancing share of 65 percent. rnThis, however merely front-loaded estimates of refinance originationsrnand significantly decreased projected refinance originations in 2014.  </p

The latest data from the Federal Reserve showrnoutstanding single-family mortgage debt fell 2.3 percent on an annualized basisrnin the first quarter of 2013.  Fannie Maernexpects it to post a slight gain in 2013 – the first annual increase in sixrnyears.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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