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Housing Contribution to GDP Will Double by 2015 – Fannie Mae

by devteam August 22nd, 2013 | Share

Fannie Mae economists Doug Duncan, Orawin T. Velz, and Brian Hughes-Cromwick said today that despite two downside risk factorsrnthey see the economy gaining strength for the rest of the year, with economicrngrowth averaging 2.5 percent in the second half after lackluster first andrnsecond quarter growth of 1.1 percent and 1.7 percent respectively.  </p

The twornexogenous macroeconomic factors that still prevail are the Federal Reserve’srnannounced slowdown of its securities purchases which would likely putrnadditional upward pressure on interest rates and the debate over federalrnexpenditures and the related debt ceiling which have the potential forrnadditional fiscal tightening.</p

Still,rnconsumer spending is strengthening substantially and manufacturing andrnnonmanufacturing production indicators are increasing steadily.  The mixed jobs report, the economists said,rndo not change their expectation of a September announcement from the Fed of a timetablernto for scaling back its asset purchases and end the program by spring.   They expect the Fed will keep the fed fundsrnrate on hold until probably late in the first half of 2015.  </p

Recentrnhousing indicators have been mixed with single-family housing starts downrnslightly for the third time in four months in June while multi-family startsrnfell sharply following a surge in May. rnLeading indicators for single-family homebuilding such as permits rosernin June for the third straight month so the writers speculate that the weaknessrnin starts may reflect shortages in labor and available building lots and spikesrnin some building material costs. </p

New home sales jumped in June for the third month asrninventories continued to increase.  Thernnumber of completed new homes, however, fell to 3.9 months, tying the recordrnlow set earlier in the year.  Tightrninventory and the rising trend in permits will support building activity forrnthe second half of the year and rising rates have not yet eroded homebuilderrnconfidence which jumped to its highest level in seven years last month. </p

Existing home sales fell in June after rising for two consecutive monthsrn(although the National Association of Realtors announced a strong rebound thisrnmorning.  Read More: Home Sales up 6.5 Percent; Prices Nearing Pre-Crash Peak) which may suggest some pullback reflecting the increase in mortgagernrates.  Mortgage applications forrnpurchase have also trended lower in both the conventional and governmentrnsectors.  Pending sales figures haverncontinued to hold up well.</p

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The economists say they expect that the historically tight supplyrnconditions will continue to support further price gains as will the graduallyrndiminishing shadow inventory.  While mortgagerndelinquencies continue substantially higher than normal the Mortgage BankersrnAssociation’s 90 day rate has fallen to 5.9 percent, down nearly 4 percentagernpoints from its 2009 peak.</p

The main measuresrnof home prices are all up, most increasing in the low double digits on anrnannual basis for the last several months. rnThe price appreciation is helping more homeowners return to a positivernequity position in their homes. </p

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Housing hasrnconsistently contributed to the GDP since the fourth quarter of 2010 and FanniernMae expects it to gradually gain momentum from the 2.1 percent share of GDP inrnthe second quarter of this year to a “normal” share of 4.2 percent byrn2015. </p

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The economists sayrnthey see little change in the forecast for mortgage rates and housing activityrnfrom those they made in July.  Thernforecast of refinance originations this year was downgraded in July in responsernto higher interest rates but over the past month incoming data show refirnoriginations remaining stronger than anticipated so they revised theirrnprojection up by nearly $100 billion and now expect total mortgage estimates torndecline to $1.75 trillion from $2.03 trillion in 2012 with the refinance sharerndropping from 73.0 percent to 64.0 percent. rnSingle-family mortgage debt should rise modestly during the year, thernfirst annual increase in six years.

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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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