Housing Poised to Lead Overall Economic Growth
The housing sector is poised to be the main anchor for economic growth this year and in the future, Fannie Mae said in its January 2013 outlook.
Doug Duncan, chief economist at Fannie Mae, said the housing recovery is on a faster upward track to normalcy compared to other economic sectors due to an improving labor market and low mortgage rates.
Overall, home sales, home prices and homebuilding activity appear to be on the upswing, having risen to multiyear highs, Duncan noted. Also, new and existing home sales have trended higher and the inventory of homes available for sale has fallen well below their long-term averages, therefore indicating a balanced home sales market.
Subsequently, declining housing inventories in conjunction with rising demand has led to both housing starts and building permits to rise in which improvement is noticeable in both multifamily and single-family structures, the government-sponsored entity said.
Fannie Mae expects housing starts to increase by approximately 23% in 2013 to 950,000 units, which is a similar rise to 2012. Additionally, the GSE is projecting annual household growth of 1.37 million in the second half of the decade based on its headship rates—the rates that population in various age cohorts will form into households.
Meanwhile, during the same time period, Fannie anticipates an annual increase in vacancy units of 160,000.
Homebuilding activity is also projected to rise with housing starts reaching sustainable levels in 2016, Fannie stated. If this happens, this will mark a 10-year process of transition from the downturn back to normal activity.
Additionally, home sales are predicted to trend up steadily, reaching nearly 6 million units in 2016. That pace of sales implies a 4.3% increase in the housing stock, which Fannie believes to be the normal rate of turnover, based on historical trends.
Due to expectations that housing starts, home sales and home prices are anticipated to improve this year, Fannie thinks mortgage originations will rise to $642 billion from a forecast of $518 billion in 2012.
However, refinance originations are estimated to decline to $961 billion from a projected $1.4 trillion in 2012.
Despite the positive news coming from the housing industry which is expected to provide a rising contribution to GDP in 2013 and in coming years, Fannie Mae is only projecting a 2% growth rate for GDP for 2013, which is similar to the subdued pace of 2012.
“We expect the fiscal policy climate to act as a drag on growth this year with possible implications on the direction of the economy in the long term,” Duncan said. “As fiscal policy debates subside later in the spring, we expect to see some upward trend in economic activity, with growth accelerating moderately in the second half of the year.
“In the longer term, the gradual return of manufacturing to the U.S. and increasing domestic energy production will work together to accelerate economic growth,” Duncan continued.
“However, we anticipate overall growth in 2013 will remain below its potential, extending what has been a slow recovery.”