Housing Seen as Emerging Bright Spot by Freddie Mac Economists

by devteam February 15th, 2013 | Share

Even with thernunexpected decline in the Gross Domestic Product (GDP) in the fourth quarter ofrn2012, Freddie Mac’s chief economist FrankrnE. Nothaft, and deputy chief Leonard Kiefer, see housing as an emerging brightrnspot.   In the February issue of FreddiernMac’s Outlook they point to a number of measures indicating that housingrnis an improving economic sector including that fixed residential investmentrnmade its first positive contribution to GDP growth since 2005, adding 0.4rnpercent to growth in the fourth quarter and 0.3 percent for the entire year. </p

December housingrnstarts were above expectations, up 37 percent from December 2011 at an annualrnrate of 954,000.  Housing starts have posted year-over-yearrngains every month since September 2011. rnExisting home sales rose 9 percent and new home sales 20 percent fromrnDecember 2011 to December 2012 and house prices are increasing nationally.  ThernFreddie Mac House Price index isrnexpected to rise 3 to 4 percent in 2013.  </p

The economists said that, despite the improvements, the level of housing activity is still near historic lowsrnwith room for substantial growth in housing and housing-related industries before we return to a more normal environment. Fannie Mae’s projections for 2013 includernan increase of 22 percent in housing starts to an annual rate of 950,000 unitsrn(from 780,000 in 2012) with another 26 percent increase to 1.2 million inrn2014.  </p<pHome sales have been recovering modestly since 2011,rnand finished 2012 at 5.02 million sales compared to 4.57 million in 2011.  Freddie Mac’s projection is for 5.45 millionrnsales in 2013 and 5.80 in 3014.  </p

House prices have bottomed out and, in most metro areas, begun rising again. The level of income in most markets suggestsrna continued improvement in home prices, and strong growth in sales and construction. The effect on sales should be accelerated as house price recovery allows homeowners who have been forced on the sidelines by negativernequity to get back into the market.</p

The market isrnbeing helped in its recovery by near record high homebuyer affordability.  In the fourth quarter this National Association of Realtor measure was secondrnonly to that recorded in the firstrnquarter of 2012.  This affordability metric incorporates the effect of low mortgage rates, low house prices, and gradually improving family income.rn</p

The recovery isrnstill uneven geographically.  Many metro areas thatrnhad substantial growth in home prices and construction activity in the yearsrnleading up to 2006 then saw some of the largest declines.  “Somewhat ironically,” Nothaft and Kiefer say, “it is many of these metro areas where current growth prospectsrnarernmost positive, as they overshot the bottom leaving room for growth as these markets return to a more normal path.”rn</p<pThe economistsrnsaid that "The macroeconomic recovery though 2011 helped to forestall further erosion in the depressed housing market. In return, housing is now "showing some love" by contributing to economic growth, perhaps by adding close to 0.5 percentage pointsrnto 2013 GDPrngrowth."

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About the Author


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

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