The strengthening of the economy will drive the housing market forward this year and make up for last year’s “unspectacular” housing activity, according to Fannie Mae’s Economic & Strategic Research Group’s report, released Thursday. Stronger wages for many Americans likely will lead to a higher rate of household formation in 2015, Fannie researchers note.
Fannie economists point to several positives in the housing recovery’s favor: Low gasoline prices, stronger labor market conditions, rising household net worth, improving consumer and business confidence, and reduced fiscal headwinds. Fannie economists predict the economy to climb to 3.1 percent this year, up from its prior estimate of 2.7 percent.
"Our theme for the year, ‘Economy Drags Housing Upward,’ implies that both housing and the economy will pick up some speed in 2015, but that the economy will grow at a faster pace," says Fannie Mae Chief Economist Doug Duncan. "We have revised upward our full-year economic growth forecast to 3.1 percent for 2015, which is not yet robust but still an improvement over last year’s growth. Consumer spending should continue to strengthen due in large part to lower gas prices, giving further support to auto sales and manufacturing. We believe this will motivate the Federal Reserve to begin measures to normalize monetary policy in the third quarter of this year, continuing at a cautiously steady pace into 2016 and 2017, likely keeping interest rates relatively low for some time."
The strength in the broader economy, along with employment and income growth, is expected to lead to a more active housing market, Duncan says. Fannie economists are predicting that home sales will increase 5.8 percent this year, due to low mortgage rates and the gradual easing of lending standards.
"Most of that is likely to come from growth in existing home sales, but we expect the rising share of new home sales to lead to a healthy increase in single-family construction of about 19 percent, or 765,000 units,” Duncan adds. “Although we don’t view this as signaling a breakout year for housing, we do expect to see broad-based improvement in 2015 following a disappointing and uneven year for the housing recovery in 2014."
Source: “2015 Economic Outlook: Economy Drags Housing Upward,” Fannie Mae (Jan. 22, 2015)