The pullback in housing demand the market experienced in the first quarter may be behind us, but home sales are still likely to fall this year for the first time in four years, according to a monthly economic outlook released today by economists at Fannie Mae.
Existing-home sales fell on a monthly basis in the first three months of the year, rose slightly in April, and jumped nearly 5 percent in May. For the first four months of the year, existing- and new-home sales were down 7 percent and 3 percent, respectively, compared to the same period last year, Fannie Mae economists said.
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“Near-term leading indicators suggest only gradual improvement ahead. Pending home sales ticked up 0.4 percent in April, and purchase mortgage applications have been trending down since early May,” they said.
Fannie Mae estimates total home sales will come in 1.4 percent lower in 2014, with new-home sales rising 11.3 percent and existing-home sales falling 2.4 percent. That’s in line with the 3 percent decline in existing-home sales the National Association of Realtors expects for this year.
“Housing has struggled to gain momentum and remains a source of concern. More recent housing indicators are modestly encouraging, suggesting the housing slump is in the past, though the rebound will likely be modest,” Fannie Mae economists said.
The economy in general, not just the housing market, contracted in the first quarter. Gross domestic product fell 1 percent — the first drop in three years. While Fannie Mae expects stronger economic growth in the second half of the year, that growth will likely not be enough to make up for first-quarter weakness, the mortgage giant said. Therefore, Fannie Mae expects GDP growth of 2.1 percent for 2014, down from 2.6 percent in 2013.
Tight inventory has limited home sales and boosted home prices. April marked the 14th straight month of double-digit year-over-year price increases, Fannie Mae said, citing CoreLogic’s home price index. Nonetheless, annual gains also cooled in April, a trend Fannie Mae expects will continue as for-sale inventory rises. The mortgage giant anticipates home prices will rise 5.2 percent this year compared with 7.6 percent in 2013.
Fannie Mae predicts total mortgage originations will decline to $1.13 trillion this year from an estimated $1.91 trillion in 2013, with purchases making up the bulk. Refinances will likely account for 37 percent of originations this year, down from about 62 percent in 2013.
Mortgage rates are expected to rise modestly this year, to an average 4.3 percent for a 30-year fixed-rate mortgage, before rising slightly in 2015 to 4.5 percent.