The economic recovery has remained lukewarm, reflecting legacy effects from the financial crisis, sequestration and a weak external environment. 

While policymakers in Congress avoided the 'fiscal cliff' debate at the beginning of the year, the across-the-board spending cuts are weighing significantly on growth, according to the International Monetary Fund’s latest report.

Despite such powerful headwinds, the nature of the recovery appears to be changing in large part due to the housing market.

Home prices have increased by more than 10% over the last 12 months, strengthening household balance sheets and supporting private demand. At the same time, residential construction has accelerated, and labor market conditions have improved.

To a large extent, such a turnover in the economy is due to easing financial conditions, with the Federal Reserve continuing to add monetary policy accommodation over the past year.

However, financial conditions have somewhat tightened since mid-May, after the central bank indicated that its bond-buying program could be scaled back later in the year.

"While the rapid pace of fiscal consolidation is expected to keep growth subdued at 1.7% in 2013, we expect economic activity to accelerate to 2.7% next year as the fiscal drag subsides and the negative legacies of the financial crisis wane further," directors for IMF explained.

They added, "With regard to policy actions, the Federal Reserve has appropriately indicated that it intends to maintain a high degree of monetary policy accommodation for a considerable time after the economy strengthens, and that the pace and composition of its asset purchases will depend on the evolution of economic conditions."

Meanwhile, financial institutions' health has improved significantly over the past 12 months, but there are a few signs of emerging vulnerabilities in the financial sector from persistently low interest rates.

Overall, directors from IMF welcomed the recent improvements in the housing and labor markets, and agreed that the rebound in housing has benefited from monetary policy actions and government-backed programs that facilitated refinancing and modification of loans under stress.

However, there is still room for policies that continue to support the housing recovery while gradually reducing the dominant role of the government-sponsored enterprises. 

"A gradual but sustained reduction in the fiscal deficit, together with a strengthening of growth in partner countries, would help achieve the desirable strengthening of the current account," IMF directors concluded.