Although the housing market is starting to pick up speed after a slow start to the year, little hope remains for it to come close to the major housing numbers seen in 2013, according to Fannie Mae’s most recent housing report.
“We remain confident that the first-quarter drop in activity will reverse, and we are seeing some positive signs in the current quarter, but economic growth likely will be playing catch-up for the rest of the year,” said Fannie Mae Chief Economist Doug Duncan.
Between disruptive weather, a rare drop in real exports and the reversal of an unsustainable buildup in inventory investment that subtracted 1.6 percentage points from GDP in the first quarter, the housing economy took a hit at the start of 2014.
Fannie Mae predicts that all of 2014 will witness an economic growth of 2.1%, one half of a percentage point below the 2013 pace.
“Although incoming data show a pickup in activity heading into the current quarter, any strength during the remainder of the year is not expected to be enough to overcome the weakness in the first quarter,” Duncan said.
These four housing indicators explain why. (click the next page for the 4 indicators)
1. The labor market
“Consumers should get a boost going forward due to continued rising household net worth, which is improving rapidly but remains well below the 2006 peak, as well as firming labor market conditions, which have showed steady albeit unspectacular gains,” Duncan said.
As HousingWire previously reported, job creation didn’t come to a standstill in the first quarter despite the fact that the economy shrank by 1%, but the Automatic Data Processing Inc. forecast for May job creation is troubling on the face of it and indicative of just how weak the economy really is.
ADP estimates that private-sector employers created 179,000 jobs for the month, the lowest figure in four months and second-lowest in the past twelve months.
2. Home prices
“Home price improvements have contributed to consumers’ household wealth, but overall growth in the housing market pulled back in the first quarter, with major housing indicators coming in lower year over year compared to the first quarter of 2013,” said Duncan.
According to the Federal Housing Finance Administration’s home price index released on Tuesday, home prices were unchanged in April, following a gain of 0.7% the prior month.
3. Mortgage rates
“More recent housing indicators were mixed, with only moderate improvement despite the decline in long-term interest rates,” Duncan said.
A week after unexpectedly jumping 10.3% last week, mortgage applications returned to their declining trend despite near year-low interest rates, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending June 13, 2014.
“While the recent uptick in rates may have a little to do with a drop in mortgage application volume, purchase activity in many areas nationwide continues to suffer from a lack of inventory and confidence," Quicken Loans Vice President Bill Banfield said. "Many consumers are very content with keeping their homes off the market, especially during the summer.”
4. New and existing home sales
Duncan explained that they expect total home sales in 2014 to be about 2% lower than in 2013, with new home sales advancing somewhere in the 12-15% range and existing home sales declining year over year.
The April National Association of Realtors existing home sales report showed sales rising for the first time in 2014, albeit a modest 1.3% rise, but it still led to positive reports.
Meanwhile the new home sales report showed that sales increased18.6% to a 504,000 annual rate, surpassing expectations, according to the Census Bureau.