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Freddie Mac Forecasts First Purchase-Dominated Market Since 2000

by devteam November 20th, 2013 | Share

The coming year should bring anrnemergence of the first purchase-dominated market the U.S. has seen since 2000rnFreddie Mac predicted today.  Thernsingle-family mortgage market will soon begin a transition from a rate-and-termrnrefinance dominated market, the company’s Chief and Deputy Chief Economistsrnsaid, to one in which home purchase loans will take the lead.  </p

Freddie Mac’s November U.S. Economic and Housing Market Outlook</imight be the sunniest forecast Frank Nothaft and Leonard Kiefer have publishedrnin some months.  They see economic growthrnin the 2.5 to 3.0 percent range, more than half a percentage point above 2013rnexpectations and a quickening recovery that will lead to more job creation andrnan unemployment rate below 7 percent, perhaps by mid-year.  And housing features prominently in thernmedium range outlook.</p

Freddie Mac expects single-family homernsales and housing starts to be at the highest level since 2007 and multifamilyrntransactions and construction to post gains as well.  Housing will remain affordable in most partsrnof the country despite rising interest rates and household formations shouldrnfinally pick up.  The later, along with arnslow growth in housing completions should keep inventories tight and vacanciesrnlow.</p

The details:</p<ul class="unIndentedList"<liHomernsales should rise about 5 percent. Addrnin home price gains, a decline in all cash purchases, and purchase-moneyrnlending may be up about 15 percent in 2014 compared to 2013. At the same time, the upward creep inrnmortgage rates and a dwindling pool of refinance candidates will convert thernmarket to one dominated by purchase money in 2014 and even more so in 2015.</li</ul

</prn<ul class="unIndentedList"<liInterestrnrates are already off of record lows and will continue to move up in 2014,rnprobably ending the year at close to 5 percent.rnThere will be volatility wherever there are concerns about fiscal policyrnand when the Federal Reserve finally announces the “taper” markets willrnprobably jump around as well.</li<liHousingrnaffordability should hold up well even with rising rates. Large cities along both coasts are already expensivernfor the typical family so rising rates will have a greater effect there. “But in most parts of the country, incomesrnand home prices are such that rising rates by themselves will not be enough tornend the recovery. What we need is somernbetter income growth,” Nothaft and Kiefer say.</li<liHousingrnconstruction, while improved, is still at a low level, not yet sufficient tornkeep up with household formations, second home demand, and the decommissioning ofrnexisting homes. Starts have risen tornabout a 900,000 annualized rate and should increase to about 1.15 million nextrnyear. This, using the National Associationrnof Home Builders figure of three jobs created for every home built, shouldrnresult in close to 700,000 jobs, and a lower unemployment rate. </li<liManyrnpotential sellers are constrained by negative equity and Freddie Mac expectsrndemand to match or exceed supply. Higherrnhome prices and increased construction will improve inventories in some marketsrnbut the economists predict home sales will be able to rise only about 5 percentrnin 2014 compared to 2013. Tightrninventories and relative affordability should help support continued pricernincreases.</li<liRentalrnproperty values have risen well over the past year but more modestly than homernprices – about 5.3 percent. Freddie Mac'srnMultifamily Investment Index remains well above its 2000-2013 averagernsuggesting that sector remains a relatively attractive investment compared withrnthe last decade.</li

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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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