More consumers planning to buy as mortgage concerns ease

Fannie Mae: Housing's contribution to economic growth expected to double in 2014

The share of consumers who plan to buy a home rose to 6.9 percent in December, up from 5 percent in November, according to a monthly economic outlook released today by Fannie Mae’s Economic & Strategic Research Group.

Despite concerns about mortgage availability, Fannie Mae economists reported that consumer attitudes about the ease of getting a mortgage are at the highest level in the 3 1/2-year history of its National Housing Survey.

Sunny housing outlook image via Shutterstock.
Sunny housing outlook image via Shutterstock.

“This result is consistent with the Federal Reserve’s survey of senior loan officers who reported that they have eased lending standards for residential mortgages over the past year and thus should offset some negative impact stemming from the current higher interest rate environment,” Fannie Mae economists said.

Now that some fiscal uncertainty has been resolved at the federal level, Fannie Mae economists predict an increase in consumer and business spending to bolster economic growth this year, with housing’s contribution expected to double.

Gross domestic product (GDP) will likely come in at 2.9 percent for all of 2014, up from an estimated 2.6 percent in 2013. Of that growth, the mortgage giant anticipates 0.6 percent will come from housing — largely due to new homebuilding activity — up from 0.3 percent in 2013.

“Despite the rise in mortgage rates since the spring, many housing indicators posted strong gains at the end of 2013 and consumer housing attitudes are strengthening, all of which bodes well for continued but measured housing recovery in 2014,” said Fannie Mae Chief Economist Doug Duncan in a statement.

In October, new-home sales rose to their highest level since July 2008, and single-family home permits jumped to their highest level since April 2008. In November, housing starts increased for the second straight month, rising to a recovery high and surpassing the 1 million mark for only the second time in the current recovery, Fannie Mae said.

“The new-home market has benefited from declining competition from foreclosures and distressed sales. With increased  momentum late in 2013, we expect both new-home sales and housing starts to post double-digit rises again this year amid an improving employment picture, rising confidence and high pent-up demand,” Fannie Mae economists said.

While new-home sales are a bright spot in the housing market, existing-home sales are less so. Such sales have not seen a rebound from the increase in mortgage rates starting in May, a development Fannie Mae says is “worrisome.” Since June, existing-home sales have risen only once and fell for the third straight month in November to the lowest level in 2013. Pending home sales declined for the fifth straight month in October, though November’s figures indicate they have stabilized.

Purchase mortgage applications have trended down sharply through the end of the year, however, remaining at 22 percent below a peak achieved in early May before the runup in mortgage rates, Fannie Mae said.

“The continued decline in purchase applications underscores weak organic demand for mortgages in the face of declining  REO and short sales, which are popular among investors,” economists said.

“Until we feel comfortable that organic housing demand from first-time homebuyers and trade-up buyers can step up to replace investor demand as bargain-priced properties are dwindling, we remain cautious on the outlook for existing-home sales this year and expect only a modest rise of about 2 percent.”

Fannie Mae economists project the median price of an existing home will rise 6.7 percent on an annual basis in 2014, to $208,000. They expect the median price of a new home to increase 6.8 percent, to $283,000. Fannie Mae anticipates that median prices of both new and existing homes will rise about 5 percent more in 2015.

Existing-home sales are expected to rise 1.7 percent in 2014 compared to 2013, while new-home sales are expected to see a 20.2 percent rise. Single-family housing starts are projected to jump even more, by 23.6 percent. All three are expected to see further increases in 2015, by 3.3 percent, 30 percent and 29.6 percent, respectively.

After rising to an estimated average 4 percent in 2013, mortgage rates are expected to increase further this year. Rates for a 30-year fixed-rate mortgage are projected to average 4.8 percent this year and rise to 5.4 percent in 2015.

After dropping an estimated 15.6 percent in 2013, mortgage originations are expected to fall 30.9 percent this year to $1.26 trillion and decline by 8.8 percent in 2015, largely due to a sharp drop in refinance loans.

Purchase loans rose an estimated 12.2 percent in 2013 from the year before and are projected to rise by 14.2 percent this year to $786 billion and further increase 7.5 percent to $845 billion in 2015.

Refinance loans, on the other hand, fell an estimated 26.7 percent to $1.13 trillion in 2013 and are projected to sink by 58.5 percent in 2014, to $469 billion due to rising mortgage rates. In 2015, economists anticipate another steep drop in refinances: 36 percent.

Fannie Mae anticipates refinancings will drop to 37 percent of mortgage originations this year, down from an estimated 62 percent in 2013, and fall to 26 percent in 2015.

The mortgage giant anticipates an average 6.5 percent unemployment rate this year, followed by an average 6.2 percent rate in 2015.


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