Fannie Mae: Will housing make full recovery in 2015?

Can't do much worse than 2014

This year is expected to end on an unspectacular note after a year of mixed economic reports, Fannie Mae’s economic outlook report said.

But there is some good news going in to next year.

Due to some unsustainable forces that drove activity in the third quarter reversing in the final quarter, the enterprise’s Economic & Strategic Research Group forecasts full-year growth of 2.1% for this year, a full percentage point below the 2013 pace.

But 2015 should be a little better, with growth still expected to strengthen heading into the new year, driven by firming consumer income prospects, rising consumer and business confidence, a broadening housing recovery and reduced fiscal headwinds.

The group expects economic growth of 2.7% for all of 2015.

“The December forecast is relatively little changed from the November forecast. We expect a weaker fourth quarter to follow a stronger third quarter, but we don’t see it as a sign of overall weakness,” said Fannie Mae Chief Economist Doug Duncan.

“The housing market is likely to continue its gradual climb upward next year after a sub-par 2014,” said Duncan. “We anticipate a fairly strong increase in housing starts in response to stronger employment and some improvement in related household incomes.”

Fannie hopes that this will help unfold some of the suppressed household formation numbers and incent builders to meet some of that increased demand.

In 2015, housing starts are expected to increase by about 22% and total home sales to rise approximately 5%, with total mortgage originations ticking up slightly to $1.13 trillion.”

But next year should be a better year for housing. “We expect 2015 to be a stronger year for home sales and mortgage activity. Rates continue to be at historic lows, and 2015 will be an excellent time to buy a home,” said Marisa Shapter, vice president of secondary marketing and licensing with Churchill Mortgage.  

“Unlike the beginning of 2014, we are coming into 2015 with rates having been on the decline," said Dan Gjeldum, senior vice president of mortgage lending with Guaranteed Rate. "Inventory levels at least in Chicago (where Guaranteed Rate is headquartered) declined in the fall, so prospective buyers who have been waiting for inventory to hit the market will not only have a surge of inventory, but also have rates near historic lows propelling their search.”  

“Multiple offer situations and shortened contingency periods should be expected as a buyer. On the mortgage market side, I don’t think rates are going to move very much through the first part of the year but if the Fed begins to raise rates as they alluded to in their most recent meeting, we would see a slight increase through the second half of the year,” Gjeldum said.

On Wednesday, Federal Reserve Chair Janet Yellen addressed two key areas during her press conference following the announcement of the Federal Open Market Committee’s meeting minutes: interest rates and dropping oil prices.

 “So I did say that the statement that the committee can be patient should be interpreted as meaning that it is unlikely to begin the normalization process for at least the next couple of meetings. Now, that doesn’t point to any preset or predetermined time at which normalization will begin. There are a range of views on the committee, and it will be dependent on how incoming data bears on the progress the committee is making,” Yellen said.  

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