U.S. Housing Recovery Has Got Catching Up to Do, Says Fannie Mae

Posted by Rapti Gupta on Jun 26, 2014 03:47 AM EDT
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After a depressing first few months of 2014, the housing market is finally picking up pace. However, the growth will be slow and the figures will barely manage to catch up with last year’s numbers, Fannie Mae announced in its June economic forecast report. (Photo : Reuters)

After a depressing first few months of 2014, the housing market is finally picking up pace. However, the growth will be slow and the figures will barely manage to catch up with last year's numbers, Fannie Mae announced in its June economic forecast report.

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Economists at the government-backed lending giants said that home sales will be 2 percent lower in 2014 as compared with that of 2013. They predicted that while existing home sales will fall on a year-on-year basis, new home sales will improve 12 to 15 percent this year.

"Housing has struggled to gain momentum and remains a source of concern," the report notes. "More recent housing indicators are modestly encouraging, suggesting the housing slump is in the past, though the rebound will likely be modest."

Fannie Mae chief economist Doug Duncan said that the sluggish first quarter (2014) conditions will be reversed soon and the current quarter will see better growth. However, he adds, "economic growth likely will be playing catch-up for the rest of the year."

"Economic growth should be stronger the second half of this year, averaging approximately 3.0 percent, as our rationale for a positive impulse from the private sector has not changed. We expect growth to come in at 2.1 percent for all of 2014, half a percentage point below the 2013 pace because of the weak start to the year," the report states.

The report highlights four indicators that help gauge the housing market health - Labor market, mortgage rates, new and existing homes sales and home prices. All of the four indicators are pointing towards positive growth.

Recently, the U.S. added back all the jobs it had lost during the recession. Though unemployment is still at 6.3 percent, the rates fell in 20 large states of the country for the fourth straight month.

Mortgage rates have also been low, despite picking up for two consecutive weeks. According to Fannie Mae's weekly survey, the average 30-year fixed mortgage rates ticked up to 4.20 percent from last week's 4.14 percent.

Indeed, the market has shown signs of improvement of late. According to a recent National Association of Realtors report, existing home sales were up 4.9 percent and new home sales were also up 18.6 percent in May, reaching its highest since 2008.

Home prices have also been picking up albeit slowly, which is a good thing for the economy right now. Jed Kolko, chief economist at Trulia explains:

"Sharply rising prices aren't necessarily a sign of a bubble; a bubble is when prices look high relative to fundamentals."

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