Fannie Mae Confident of Continued Growth in 2014

Fannie Mae Confident of Continued Growth in 2014

The housing market’s cooler-than-expected first quarter should just be a temporary blip in a year of modest overall growth, according to Doug Duncan, chief economist at Fannie Mae.

Fannie Mae released Wednesday its latest economic forecast, which acknowledged that atypically harsh winter weather in much of the United States has slowed new home construction and sales in Q1 2014. But the report also reaffirms Fannie Mae’s position that the economy and housing markets will improve on 2013 growth by the end of Q4.

In an accompanying podcast to the February forecast, Duncan presented a mixed bag of growth and sluggishness in the housing market. A rise in mortgage rates, which Duncan expects to top out somewhere between 4.75 and 5 percent by year’s end, will slow existing-homes sales to about 1 percent growth this year, and maybe even less in Q1, he said.

Pending home sales plunged by 8.7 percent in December and were flat in January, leading to a rather guarded optimism that existing-home sales will show even tiny signs of improvement.

However, Fannie Mae is openly optimistic that sales of newly constructed homes should increase sharply this year, continuing last year’s trend toward more building and sales.

The caveat, Duncan said, is that the rise in new home sales is coming from a very low base. A healthy market, he said, would be about 1.7 million units built in a year. Fannie Mae predicts about 1.15 million units will be built in 2014, up from an overall 923,000 units built in 2013 (which itself was an 18.3 percent jump from 2012).

This is good news for the job market, as new construction means new jobs for builders and crews. Residential construction employment jumped by 17,000 jobs in January and should continue growing modestly in 2014, even if the numbers do not reach their pre-recession plateau of 2.5 million jobs, the report stated.

Overall mortgage volume, however, will likely be down this year, Duncan said. Higher mortgage rates are curtailing refinancing activity, even though an expected rise in mortgages for new home purchases should offset the drop a little, he said. Interest in mortgages peaked in May of 2013 and then fell by 20 percent, where it has stayed, according to the Fannie Mae forecast.

Despite a few broken bones in housing, however, Fannie Mae expects fairer weather to usher in gentle growth for the economy for the remainder of the year. The agency expects the economy overall to increase from 2.7 percent to 2.9 percent this year, a prediction in line with the most recent figures from the U.S.Bureau of Economic Analysis, which shows a 2.4 percent growth in gross domestic product (GDP) in the last quarter of 2013. This growth continues a modest climb in the GDP throughout last year.

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