While impending fiscal cuts at the federal level will likely put a damper on economic growth in the first half of this year, home-price growth and an increase in homebuilding suggest housing is "on a sustained growth path," according to a monthly economic outlook released today by Fannie Mae’s Economic & Strategic Research Group.
The lowest number of homes for sale since December 1994, a rising share of short sales compared to foreclosures, and fewer distressed properties overall have helped push up home prices from a bottom reached in early 2012, Fannie Mae said.
"One of the key developments for the housing market last year was the general consensus that home prices, on a national basis, bottomed earlier in the year and continued to build momentum, exhibiting robust year-over-year gains unseen since the housing boom," the report said.
"While prices usually weaken in the winter months, the CoreLogic house price index (non-seasonally adjusted) defied seasonal weakness, rising 0.4 percent in December from November, and 8.3 percent from last year — the biggest gain since May 2006."
Fannie Mae economists said the housing recovery is "broadening" and "durable."
"Housing underpinned the broader economy in 2012, particularly the pickup in construction," the report said.
Aside from the month-to-month volatility in new- and existing-home sales and building permits, "all housing indicators performed quite well in 2012 compared with 2011, and housing fundamentals suggest a continuing solid housing recovery this year" despite continued tight credit availability and an increase in the mortgage insurance premium for loans insured by the Federal Housing Administration (FHA), the report added.
Housing should help offset some economic headwinds in the first half of the year, the report said, including tax increases and government spending cuts known as "sequestration" that Fannie Mae economists anticipate will go into partial, not full, effect but will nonetheless amount to a 0.2 percent drag on economic growth for the year.
Fannie Mae economists projected the median price of an existing home would rise 2.3 percent on an annual basis in 2013, to $181,000. They expected the median price of a new home to increase 1.6 percent, to $248,000. Fannie Mae anticipates that median prices of both new and existing homes will rise an additional 2.8 percent in 2014.
Existing-home sales, new-home sales and single-family housing starts are expected to see substantial increases from 2012. Fannie Mae predicts each will rise 11.5 percent, 12.5 percent and 23.7 percent, respectively, in 2013 compared to 2012. The mortgage giant expects further improvement next year with increases of 5.5 percent, 47.5 percent and 32.3 percent, respectively.
After falling to record lows in 2012, mortgage rates are expected to rise slightly this year. Rates for a 30-year fixed-rate mortgage are projected to average 3.8 percent this year and rise even further to 4.4 percent in 2014. Fannie Mae had previously forecast a decrease in mortgage rates this year, but the expected possibility of an early end to the Federal Reserve’s efforts to keep a lid on interest rates has pushed up interest rates, economists said.
Mortgage originations are expected to drop 21.7 percent this year to $1.51 trillion and decline by 25.9 percent in 2014, largely due to fewer refinance loans.
Purchase loans are projected to rise by 18.5 percent this year to $628 billion — up from a forecast of $530 billion — and rise to $731 billion in 2014 due to expected continued improvements in housing starts, home sales and home prices, Fannie Mae said.
Refinance loans, on the other hand, are expected to fall 36.9 percent to $880 billion and sink even further in 2014, 56.1 percent, to $386 billion due to rising mortgage rates.
Fannie Mae anticipates refinancings will drop to 58 percent of mortgage originations this year, down from 72 percent in 2012, and fall to 35 percent in 2014. The forecast assumes the government’s Home Affordable Refinance Program (HARP) expires at the end of 2013 as scheduled.
The mortgage giant anticipates an average 7.8 percent unemployment rate this year, followed by an average 7.4 percent rate in 2014.
While real gross domestic product fell 0.1 percent in the fourth quarter and ended 2012 at 1.5 percent, Fannie Mae economists predict 2 percent growth this year followed by 2.6 percent growth in 2014.