Freddie Mac’s July Outlook Shows Mixed Results After ‘Bittersweet’ First Half

As we head into the second half of 2014, there is a mixed bag of results for the housing recovery, according to government-sponsored enterprise (GSE) Freddie Mac's U.S. Economic and Housing Market Outlook for July.

First, Freddie Mac projects that new housing construction will increase about 14% in 2014 compared to 2013. Housing starts for this year are forecast to be 1.05 million dwellings, with multifamily accounting for about one-third.

After a disappointing first part of the year, the GSE expects home sales to play catch-up and accelerate for the remainder of the year. As such, the home sales forecast remains at 5.4 million, a slippage of about 2% compared to last year. Existing sales are projected to be 3% lower, whereas new home sales are projected to be up by 10% to 15%.

The employment picture has improved, with a net monthly growth of 231,000 non-farm jobs for the first half of the year. Stronger employment will translate into more household formations and a pickup in rental housing demand, with future gains for the single-family sales market, according to the report.

Single-family mortgage originations are down following a lackluster spring home buying season and a sharp drop in refinance. For this reason, Freddie Mac says, the mortgage originations forecast for 2014 was reduced by 6%.

Freddie Mac expects fixed mortgage rates to rise very gradually during the year in keeping with the Fed's plan to keep interest rates low at this time. However, according to the GSE, the 30-year fixed mortgage rate at the end of the year will be near historic lows at around 4.4%.

‘Although the economic news for the first half of 2014 has been bittersweet, there is good news to share as we head into the latter half of summer," says Frank Nothaft, Freddie Mac's vice president and chief economist.

"In particular, employment was up by nearly 1.4 million during the first six months, and this will bolster household formations, resulting in positive gains most immediately for the rental housing market and then, longer term, for single-family home sales.

"The multifamily rental market has led the rest of the housing sector into recovery, and about one-third of housing starts in the first quarter were for multifamily rental apartments. There's no question the single-family recovery is moving slowly, but it continues to doggedly press forward, and we are cautiously optimistic.’

Freddie Mac's full report can be found here.


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