Freddie Macs senior economists Frank E. Nothaft
and Leonard Kiefer said
in the company's March Outlook that "the continued strengthening of the economy
has brought good news for housing and mortgage markets so far this year" with
nonfarm payrolls increasing by 236,000 in February and the unemployment rate
dropping to 7.7 percent from 7.9 percent.
While the unemployment rate remains well above what would be expected in
a healthy economy, it's moving in the right direction.
Near record-low mortgage rates are contributing to near record-high homebuyer affordability and housing is increasingly
contributing to an economic recovery
"that is poised to turn this year's spring homebuying season from gloom to
According to the Flow of Funds Accounts from the Federal Reserve, household and
increased by 7.4 percent in 2012, with the value of owner-occupied real
estate, including vacant land and mobile homes, increasing by 8.7 percent. In 2009 real estate lost $1.1 trillion in value, largely due to the fall in
2012, it added $1.5 trillion to household and nonprofit
balance sheets, while financial assets added $3.8 trillion. On the liability side, outstanding residential mortgage debt increased
for the first time since 2008, indicating that household deleveraging might be
drawing to a close.
Nationally house prices were up by 6.4 percent on an annual basis in December according to
Freddie Mac House Price Index (FMHPI).
The housing markets hardest hit by the Great Recession such as Arizona posted the strongest gains. Freddie Mac points out that while the price increases
are significant, they
are off a deep bottom and in some markets prices even
overshot the bottom.
Freddie Mac expects to see the positive
housing market momentum
to carry over into
2013 with continued low mortgage rates, increasing house prices, and gradually improving consumer confidence supporting increased home
sales. The company projects sales to be
up 8 to 10 percent over 2012 and the demand for new housing (both multifamily and single-family)
to result in more construction, higher new home sales
construction employment. Housing
starts are projected to increase to
950,000 units for 2013, compared to
780,000 in 2012.
Nothaft and Kiefer
see two potential stumbling blocks that could slow or reverse the building momentum in the economy and housing market.
A deterioration of the situation in Europe could
weaken foreign demand and potentially disrupt financial markets. Domestically, fiscal policy could be a drag on economic growth. The Congressional Budget Office and others
expect the Sequester to reduce economic growth by about 0.5 of a percentage point in 2013 and Freddie Mac reduced its projections in
February to reflect that number. That means the fiscal drag will just about offset
positive contribution residential construction is poised to make to the GDP in economic growth.
Sequestration cuts will also likely result in lower employment growth, which should have a dampening
effect on housing. With modest growth and stubbornly high unemployment, long term interest rates,
such as for the 30-year fixed-rate mortgage, will only gradually creep up and likely remain
below 4 percent throughout 2013.
The economists see a brighter long-term outlook with economic growth in
2014 of around 3.5 percent. After absorbing the fiscal drag from the sequestration cuts, the unemployment rate should begin to come down in 2014, but
will not drop below 7 percent until 2015. If inflation remains contained and the
Federal Reserve continues on its stated course mortgage rates should remain low,
this should continue
to help fuel the housing recovery.
"Regardless we are already beginning to see the housing wealth effect take hold in the broader market which should translate into the healthiest spring homebuying season we have seen
2007," the economists say.