Since the crisis the housing industry has been consistently expanding, but when the pace of growth lost a large amount of momentum in the final quarter of last year, on top of economists' predictions of slow growth, many in the industry are questioning if the expansion is beginning to expire.
According to Freddie Mac’s Insight and Outlook report, real growth in the U.S., fell to 0.7 percent in the fourth quarter of 2015, according to estimates from the Bureau of Economic Analysis. In addition, inflation continues to struggle, with GDP deflator growth falling from 1.3 percent in the third quarter of 2015 to 0.8 percent in the fourth quarter of 2015.
Unemployment also declined in January 2016 to 4.9 percent, and wages increased 0.5 percent to $25.39.
"In light of this lackluster economic performance and the recent financial market turbulence, we have lowered our real growth projections to 2.0 percent in 2016 and 2.3 percent in 2017," Freddie Mac stated. "We also expect the unemployment rate to average 4.9 percent and 4.8 percent in 2016 and 2017, respectively. We anticipate CPI inflation will average 1.4 percent in 2016 and 1.9 percent in 2017."
Lower treasury yields have also lowered Freddie Mac's projections concerning the 30-year mortgage rate, which they expect will average 4.1 percent in 2016 and 4.8 percent in 2017.
As far as housing is concerned, Freddie Mac said that the imbalance between demand for housing and the supply of both houses and apartments has supported rapid growth in both house prices and rents. However, the industry should not expect to see any closure in the supply and demand gap, so prices will continue their upward trend in 2016. Low mortgage rates are projected to fuel home purchases and refinances, but refinance volume could fall if the Fed resumes monetary tightening later this year.
Freddie Mac said, "Housing was one of the few bright spots in the economy last year, and we expect continued improvement in 2016."
Freddie Mac's recent noteworthy housing indicators:
- The resurgence in home sales continued in January as existing-home sales increased. The National Association of Realtors’ February release showed existing-home sales went from a seasonally adjusted annual rate of 5.45 million in December to 5.47 million in January, beating analyst expectations. January’s figures also represent year-over-year growth at 11 percent.
- The Commerce Department reported that January had a 9.2 percent monthly drop in new residential sales (5.2 percent below January 2015), which is still keeping in line with a steady growth trend. Looking at total housing inventory, there was a 3.4 percent increase from December and a 4-month supply of unsold inventory at the current sales pace. With a typical surge in homebuying activity set to begin in the spring, the increase in inventory will not be enough to counter home price appreciation that showed 8.2 percent yearly growth for existing-home sales.
- Housing starts fell 3.8 percent in January according to the U.S. Department of Commerce. Some of this decline was weather-related. However, the Housing Market Index published by the National Association of Home Builders fell to its lowest reading since May 2015, indicating labor and property shortages are preventing builders from catching up to the demand for new homes.
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