Housing Contribution to GDP Will Double by 2015


Fannie Mae economists Doug Duncan, Orawin T. Velz, and Brian Hughes-Cromwick said today that despite two downside risk factors
they see the economy gaining strength for the rest of the year, with economic
growth averaging 2.5 percent in the second half after lackluster first and
second quarter growth of 1.1 percent and 1.7 percent respectively. 

The two
exogenous macroeconomic factors that still prevail are the Federal Reserve’s
announced slowdown of its securities purchases which would likely put
additional upward pressure on interest rates and the debate over federal
expenditures and the related debt ceiling which have the potential for
additional fiscal tightening.

consumer spending is strengthening substantially and manufacturing and
nonmanufacturing production indicators are increasing steadily.  The mixed jobs report, the economists said,
do not change their expectation of a September announcement from the Fed of a timetable
to for scaling back its asset purchases and end the program by spring.   They expect the Fed will keep the fed funds
rate on hold until probably late in the first half of 2015. 

housing indicators have been mixed with single-family housing starts down
slightly for the third time in four months in June while multi-family starts
fell sharply following a surge in May. 
Leading indicators for single-family homebuilding such as permits rose
in June for the third straight month so the writers speculate that the weakness
in starts may reflect shortages in labor and available building lots and spikes
in some building material costs.

New home sales jumped in June for the third month as
inventories continued to increase.  The
number of completed new homes, however, fell to 3.9 months, tying the record
low set earlier in the year.  Tight
inventory and the rising trend in permits will support building activity for
the second half of the year and rising rates have not yet eroded homebuilder
confidence which jumped to its highest level in seven years last month.

Existing home sales fell in June after rising for two consecutive months
(although the National Association of Realtors announced a strong rebound this
morning.  Read More: Home Sales up 6.5 Percent; Prices Nearing Pre-Crash Peak) which may suggest some pullback reflecting the increase in mortgage
rates.  Mortgage applications for
purchase have also trended lower in both the conventional and government
sectors.  Pending sales figures have
continued to hold up well.


The economists say they expect that the historically tight supply
conditions will continue to support further price gains as will the gradually
diminishing shadow inventory.  While mortgage
delinquencies continue substantially higher than normal the Mortgage Bankers
Association’s 90 day rate has fallen to 5.9 percent, down nearly 4 percentage
points from its 2009 peak.

The main measures
of home prices are all up, most increasing in the low double digits on an
annual basis for the last several months. 
The price appreciation is helping more homeowners return to a positive
equity position in their homes.


Housing has
consistently contributed to the GDP since the fourth quarter of 2010 and Fannie
Mae expects it to gradually gain momentum from the 2.1 percent share of GDP in
the second quarter of this year to a “normal” share of 4.2 percent by


The economists say
they see little change in the forecast for mortgage rates and housing activity
from those they made in July.  The
forecast of refinance originations this year was downgraded in July in response
to higher interest rates but over the past month incoming data show refi
originations remaining stronger than anticipated so they revised their
projection up by nearly $100 billion and now expect total mortgage estimates to
decline to $1.75 trillion from $2.03 trillion in 2012 with the refinance share
dropping from 73.0 percent to 64.0 percent. 
Single-family mortgage debt should rise modestly during the year, the
first annual increase in six years.

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