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Fitch: Housing market getting ready to grow

Expects second half upturn, leading to strong 2015

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Citing recent “encouraging economic and housing data,” analysts from Fitch Ratings expect an accelerated upturn in housing in the remainder of 2014.

In Fitch’s The Chalk Line report for Summer 2014, Fitch analysts Robert Curran, Monica Delarosa and Robert Rulla write that the projected growth in housing will last throughout 2015 and lead to a much stronger year than 2014 is proving to be.

“Demographics, attractive affordability/housing valuations, and a slow, steady easing in credit standards should sustain and ultimately accelerate the upturn,” the analysts write. “The latest economic and housing macro statistics are generally encouraging.”

The analysts say that 2014’s performance is fighting an uphill battle after an unexpectedly strong winter put a significant dent in the housing market in the first few months of the year.

“The spring selling season was underwhelming enough that this, along with more guarded expectations for the next few months, will lead to more modest growth for macro housing statistics before the year is through,” said Robert Curran, Fitch’s managing director and lead homebuilding analyst.

Fitch is now projecting single-family home starts to improve 9.5% to 677,000 in 2014. It is also projecting new home sales to advance about 8% to 465,000 and existing home volume to decline 5% to 4.835 million, “largely due to fewer distressed homes for sale,” the analysts write.

According to a recent report from the National Association of Realtors, existing home sales are at the highest pace since October 2013, but remain 2.3% below the 5.16 million-unit level a year ago.

The NAR report projects that exisiting home sales will reach beyone the 4.835 million suggested by Fitch's analysts. According the NAR report, total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 2.6% from May 2014 to a seasonally adjusted annual rate of 5.04 million.

Fitch's analysts predict that the despite the modest forecast, 2015 is going to be a big year for housing. “Growing strength in the economy, employment and demographics should positively influence housing next year,” the analysts write.

“Total housing starts are projected to expand 16% to 1.185 million as single-family starts advance 21% and multifamily volume gain 6.7%. New home sales should improve more than 20%, while existing home sales rise 5%.”

From a macro prospective, Fitch’s analysts are predicting an economic improvement for the country as a whole.

“Housing metrics should increase in 2014 due to moderate economic growth during the last three quarters of the year (prompted by improved household net worth, industrial production and consumer spending), and consequently some acceleration in job growth (as unemployment rates decrease to 6.2% for 2014 from an average of 7.4% in 2013), despite somewhat higher interest rates, as well as more measured home price inflation,” the analysts write.

The analysts are predicating a gross domestic product increase of 5% from 2014 to 2015, driven by increases in construction spending and housing.

Fitch’s analysts expect single-family housing starts to increase by 21% in 2015 over 2014’s total. New and existing home sales are expected to increase significantly as well.

“Demographics should be more of a positive catalyst,” the analysts write. “More of those younger adults who have been living at home should find jobs and these 25–35-year-olds should provide some incremental elevation to the rental and starter home markets.”

The analysts caution that there are challenges to the projected growth. “Demand will continue to be affected by narrowing of affordability, diminished but persistent and widespread negative equity, challenging mortgage-qualification standards and lot shortages,” the analysts write. “As Fitch has noted in the past, the recovery will likely remain fitful.”

But for now, the indicators are pointing towards a fruitful next 18 months. 

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