Fannie economists watch rates closely, but remain positive on housing

Jobs, not rates, are the key to economic recovery

The nascent housing recovery is expected to continue with job numbers showing year-to-date growth in recent months and the housing market's momentum holding up despite rising interest rates, Fannie Mae wrote in its latest economic forecast for the second half of 2013.

The GSE’s Economic & Strategic Research Group said today's job creation numbers and consumer confidence are at or near recovery highs.

Rising mortgage rates in the wake of the Fed’s indication that QE3 could end sometime in the near future remains a concern, but have yet to stifle growth.

"We are keeping a very close eye on the effect of rising mortgage rates on the housing market and the economy, but our July forecast is little changed from last month," said Fannie Mae Chief Economist Doug Duncan.

"We continue to see growth in housing, partly due to an increase in existing home sales as buyers choose to act while rates remain near historic lows. Consumer attitudes are improving amid a strengthening employment sector and we should begin to see a moderate pickup in consumer spending. Overall, we expect economic growth to come in at 2%in 2013, but further momentum later this year should help carry growth in 2014 to an above-par pace of 2.6%, the strongest since 2005."

Fannie economists expect mortgage rates to continue rising, hitting 4.7% in the fourth quarter of 2013 – a 40-basis point increase from the June forecast.

While purchase applications have not been significantly harmed by higher rates, Fannie reported a marked decline in refinancing applications.  

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