Fannie Mae said on Thursday that real economic growth in the last two quarters of 2014 appear poised to exceed 3.0 percent, providing a solid basis for growth in 2015.  However the housing recovery will remain "choppy."

The October Economic and Housing Outlook published by Fannie Mae says reduced fiscal uncertainty and slowing monetary intervention has enabled momentum in the private sector to build while total government spending no longer declined.  Those government cutbacks had been masking improvement in the private economy. Housing contributed to growth as well, rebounding strongly in the second quarter from sharp drops in the previous two quarters

The company's Economic and Strategic Research Team, headed by Doug Duncan, chief economist, see a variety of global factors slowing growth and raising some risks than may keep the Federal Reserve on the side of caution.  Thus interest rate policy may not change until the third quarter of next year.  

Economics took a toll on housing activity from late 2013 into 2014 as house prices rose by an inflation-adjusted 8 percent and interest rates rose in what the Outlook calls "the Taper Tantrum of mid-2013."  Then there was the coldest winter since the late 1970s which prompted very weak housing numbers in the first quarter of this year.

Recent activity has been mixed. July saw the strongest pace in housing starts in more than six years before they posted the sharpest drop in over a year the very next month, largely driven by the multifamily sector.  Year-to-date through August both single-family and multifamily starts were running above their year-ago levels by 3.1 percent and 20.7 percent, respectively. However, single-family permits were running below their levels during the first eight months of last year.

Existing home sales fell slightly in August after four straight months of gains and by the end of August were at a pace 5.6 percent below the year-to-date rate a year earlier.  August pending home sales also dropped, suggesting limited near-term gains and mortgage applications have remained lackluster.

On a positive note, new home sales jumped by nearly 20 percent in August and builder confidence rose to its highest point during the current expansion.  Consumer attitudes also improved; the share of consumers who say it is now a good time to buy a home gained 4 percentage points to 68 in the August National Housing Survey and 66 percent of respondents said they would prefer to buy a home the next time they moved, a gain of two points.

Home prices are also continuing to moderate from the pace of a year ago although they are still rising, largely due to lack of supply both from new construction and diminishing numbers of distressed homes.   These rising prices have improved the equity position of homeowners and the share of the equity owner occupants hold in real estate has risen for 12 consecutive quarters to 53.6 percent in the second quarter of 2014, the highest it has been since early 2007.  Equity hit a low of 36.7 percent in the first quarter of 2009. At the end of the second quarter of 2014, 10.7 percent (nearly 5.3 million homes) were in negative equity, with nearly 1 million homes regaining positive equity during the quarter.

Fannie Mae expect that mortgage rates will rise only gradually from the 4.12 percent quoted for the 30-year fixed mortgage during the week ended October 9 to 4.7 percent by the end of 2015.  The company's economists have also made few changes to their forecast of housing activity with total home sales expected to fall about 3.0 percent this year from 2013 levels.  They expect that improving labor market conditions, low rates, and rising inventories will boost new home sales next year by about 5 percent while new home construction will remain limited.  Housing starts will increase from about 1 million units projected this year to 1.17 million next year.

A new benchmark for loan originations has caused an upward revision of Fannie Mae's estimate of purchase originations for 2013 and a downgrade of the estimate for refinancing originations.  On the net estimate of total originations that year was revised downward by $47 billion to $1.87 trillion.  Fannie Mae also lowered projected originations for 2015 and now anticipates a decline of 8.0 percent from the 2014 estimate to $1.01 trillion in 2015 and the refinance share to drop to 30.0 percent in 2015 from a projected 39.0 percent in 2014.