Fannie Mae's economic and strategic
research team today called the housing recovery "undeterred" after it
contributed 0.3 percentages points to economic growth in the first
quarter. Doug Duncan, Orawin T. Velz,
and Brian Hughes-Cromwick said this was the eighth consecutive quarter
that housing has added to growth and the company's Economic Summary for May
said recent housing indicators point to continued recovery.
The annualized rate of housing starts
in March was over one million units for the first time since 2008, driven solely
by a surge in multi-family building which more than offset a decline in
single-family construction. Multi-family
housing starts are now back to the levels of the early 2000s, benefitting the report
says from a continuing decline in homeownership which fell again in the first
quarter to 65 percent, the lowest rate since 1995.
Existing home sales fell in
March, essentially wiping out the gains in the first two months of the
quarter. Sales of new single-family
homes rose from February and, combined with January sales which were the
strongest since April 2010, the annualized first quarter new home sales were up
51 percent, the biggest gain since 2003.
Using the one from the National
Association of Realtors as a model, Fannie Mae's economists have constructed
their own affordability index built on mortgage rates, family income, and home
prices. The higher the index, the more
affordable homes are. Of the variables,
affordability is the most sensitive to changes in interest rates and the index
projects that housing affordability should trend down gradually from its peak
in 2012 but will remain above the level considered normal through 2017.
The analysis suggests that
affordability will continue to support the housing recovery but it is no longer
a primary diver of home buying. Lending
standards, regulations about securitization, and housing finance reform will be
future keys to a transition to normal in the housing market.
Supply side issues have
contributed to the third straight decline in builder confidence in April. But builders are anticipating a better
environment going forward and the declining inventories of both new and
existing homes point to improving sales conditions.
shrinking declining backlogs of homes for sale along with declining shares of
distressed sales and increasing use of foreclosure alternatives are helping to
boost home prices which are continuing to increase in CoreLogic indices including
and excluding distressed sales. This
indicates that the housing recovery is broadening across both distressed and
non-distressed properties. Fannie Mae
expects further price increases into the spring home buying season as
inventory, though improving, remain lean.
inventories also seem to be diminishing as data from the Mortgage Bankers
Association (MBA) show that seriously delinquent (90+ days) mortgages or
mortgages in the process of foreclosure have declined from the record high of
9.7 percent in the fourth quarter of 2009 to 6.4 percent in Q1 2013. Overall mortgage performance has improved
meaningfully; loans at least one payment past due or in foreclosure are now at
a four year low of 10.3 percent.
The Report says
that anecdotal evidence is pointing toward a growing sellers' market with
multiple bids becoming more common.
Fannie Mae's April National Housing Survey shows the nation is
approaching a 'sweet spot." The
share of Americans who view it as a good time to buy remains high (71 percent)
while those who think it a good time to sell has doubled over the past year to
30 percent. Further supporting a
sellers' market is a solidifying consumer view that prices have bottomed
out. The majority now even expect prices
mortgage lending environment has also improved.
Cash sales still account for one-third of existing home sales but
mortgage demand has gradually increased with the MBA's weekly survey in early
May showing purchase mortgage applications at the highest level in three
The yield on 10-year Treasuries
trended down to 1.61 percent on May 2, the lowest level for this year. Then the stronger than expected April jobs
report helped boost investor risk appetites sending the yield back up to 1.90
percent at the time the summary was written.
Fannie Mae expects the yield to rise gradually to nearly 2 percent by
the end of 2013 and mortgages rates to average 3.7 percent in the fourth quarter
of the year, remaining a strong support for the housing and mortgage
is revising higher its projection for multifamily starts for this year and next
but essentially kept the forecasts for single family starts and home sales
unchanged. Multi-family starts will
increase about 35 percent during the year - nearly as strong a gain as last
year - and single family starts will increase about 24 percent. Total home sales should rise about 8 percent
from 2012 and single family mortgage originations will fall 14 percent to $1.66
trillion in 2013 as refinancing retreats faster than purchase originations
increase. Refinancing will fall to about
a 63 percent share of applications (down from a current range of 72 percent)
and mortgage deleveraging will come to an end as total single-family mortgage
debt will rise slightly for the first time in six years.