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Housing Outlook Remains Positive Despite Possible Hurdles

JAN 23, 2013 4:49pm ET
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Economists expect the housing recovery to continue this year building off of the momentum generated in 2012 despite some challenges that could hinder future growth.

David Crowe, economist for the National Association of Home Builders, said nearly every measure of housing statistics—sales, starts, prices, permits and builder confidence—trended up towards the end of 2012 and all are projected to see “gradual but steady growth” in 2013.

Crowe said residential remodeling has returned to previously normal levels and that activity is expected to post a 2.4% increase in 2013 over the prior year. Also, NAHB is forecasting 949,000 total housing starts in 2013, up 21.5% from 781,000 units a year ago.

Other factors that have a positive effect on the housing industry’s outlook include low mortgage rates, strong housing affordability, rising household formations and that two-thirds of the U.S. housing markets are considered to be improving, NAHB said in a recent report.

According to Frank Nothaft, chief economist at Freddie Mac, 30-year, fixed-rate mortgages are projected to stay below 4% through the end of this year.

“An important stimulant driving housing demand has been declining mortgage rates,” Nothaft said. “These are the lowest rates we have seen in 65 years.”

Furthermore, the refinance boom for single-family homes associated with low mortgage rates is forecasted to last this year but gradually taper down, Nothaft added. While overall mortgage originations are expected to fall 15% in 2013, Nothaft said home price originations will be trending higher due to a projected 8% increase in home sales this year.

However, demands by some policymakers in Washington to make changes to the mortgage interest deduction could threaten consumer confidence and future housing demand. Secondly—in places where buyers are ready to purchase a home—persistently tight mortgage credit standards limit the number of creditworthy borrowers from entering the market, said David Berson, senior vice president and chief economist at Nationwide Insurance.

“The problem is mortgage lending standards are way too tight,” Berson stated. “If we were at a scale of nine or 10 in 2005-2006, we are at a two today. We want to be around a five.”

Additionally, Berson noted that federal agencies will be releasing final rules at some point this year on a national qualified residential mortgage standard that could further restrict mortgage lending.

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