Despite lower expectations for the economy’s progress as a whole this quarter, home sale and price trends suggest housing finally represents "a tailwind to growth," according to a monthly economic outlook released today by Fannie Mae’s Economic & Strategic Research Group.
"The housing market has turned the corner and a sustained recovery is under way," the report said, despite some significant challenges that remain ahead, including tight lending conditions, uncertainty surrounding mortgage regulations, and the fiscal cliff.
Home prices have seen strengthening year-over-year gains over the last several months and prices are expected to end the year on a positive note for the first time in six years, Fannie Mae economists said.
They projected the median price of an existing home would rise 4.2 percent on an annual basis in 2012, to $173,000. They expected the median price of a new home to increase 4 percent, to $236,000. Fannie Mae is projecting that median prices of both new and existing homes will rise an additional 1.7 percent in 2013.
Existing-home sales, new-home sales and single-family housing starts are expected to see substantial increases from last year. Fannie Mae predicts each will rise 9.6 percent, 19.5 percent and 25.7 percent, respectively, in 2012 compared to 2011. The mortgage giant expects further improvement next year with increases of 6.4 percent, 21.9 percent and 22.4 percent, respectively.
After falling to record lows this year, mortgage rates are expected to fall even further next year, boosting housing demand. Rates for a 30-year fixed-rate mortgage are projected to average 3.7 percent this year and decline to 3.4 percent in 2013 as a result of the Federal Reserve’s continued efforts to keep a lid on interest rates.
Mortgage originations are expected to rise 25.2 percent this year to $1.87 trillion, but decline by 17.1 percent in 2013, largely due to a drop in refinance loans.
Purchase loans remained virtually flat this year, at $518 billion, but are projected to rise by nearly 15 percent next year to $595 billion. Refinance loans, on the other hand, saw an estimated 27.5 percent increase this year to $1.35 trillion and are expected to decrease by 29.3 percent in 2013, to $956 billion. Fannie Mae anticipates refinancings will drop to 62 percent of mortgage originations, down from 72 percent in 2012.
Homebuilder confidence rose for the seventh straight month in November, to a six-year high, the report noted.
"Residential investment has been a positive, albeit small, contributor to economic growth during the past several quarters and will add to growth on an annual basis this year for the first time since 2005," Fannie Mae economists said. "While the current contribution of housing to the economy is small, it is growing."
The mortgage giant anticipates an average 8.1 percent unemployment rate this year, followed by an average 7.5 percent rate in 2013.
While real gross domestic product grew 2.7 percent in the third quarter, Fannie Mae economists predict much weaker 1.5 percent growth in the fourth quarter, culminating in 1.9 percent growth for the year. That’s a slight decrease from 2 percent in 2011. Economists anticipate a slight increase to 2.2 percent in 2013.