Despite a disappointing first quarter and a mediocre second quarter, Freddie Mac still expects the economy to improve throughout the second half of 2014. The company is, however, tempering its New Year's optimism.
In its June U.S. Economic and Housing Market Outlook, Freddie offers a mid-year assessment that sees more humble growth in gross domestic product that mirrors the 2 to 2.5 percent growth that the economy has seen the past few years.
Contributing to this modest growth will be an upswing in the workplace. U.S. unemployment is down from 6.7 to 6.3 percent, and May showed the fourth straight month in which 200,000 new jobs were created.
For housing, the even-better news is that construction jobs are picking up, particularly in the residential building and specialty trade sector. These areas are averaging about 9,500 jobs per month so far this year.
Still, there’s hardly cause for joy bells just yet. "Construction has rebounded over the past two years but is still significantly below the levels one would expect to see given projections of household formations," said Frank Nothaft, Freddie Mac's chief economist.
Nothaft is also tenuous in his view of the overall housing picture. "We're nearly half way through the year and single-family housing remains weaker than we projected six months ago, while multifamily appears to be right on track," he said.
Inventories of homes for sale are still limited in markets where sellers remain underwater or have decided to stick with the bargain-basement mortgage rates they refinanced or modified their loan into under government programs. This, Freddie reported, is holding back a full recovery in the overall sales market.
"The important question is: How much further will prices and rents have to rise to give incentives for more existing owners to list their properties for sale and developers bring more supply to the market?" Nothaft said.
While the number of vacant units has decreased overall by 4.2 percent since Q1 2010, the number of vacant units for sale has declined by 24.2 percent. And while homebuying has picked up since the end of March, activity is still down 13 percent compared to last year, Freddie reported.
This has caused the agency to lower its overall homes sales forecast from 5.5 million to 5.4 million.
The good news for Freddie is that the leveling-off of home sale prices should lead to more stable and sustainable gains. Though the enterprise's House Price Index was up 9.3 percent in 2013, Freddie expects gains to slow to 5 percent this year, though average apartment rents should rise 3 to 3.5 percent through 2015.
Overall, Freddie expects the low vacancy rate and tight inventory to carry the housing market through its current above-inflation growth. The company just expects it to happen with a little less gusto than it had thought at the beginning of the year.