Housing improves even with economic setbacks

By Sari R. Updated on 4/17/2013

Tax hikes and sequestration should hold back economic growth and offset housing and the Federal Reserve’s monetary policy.  Therefore, economic growth in 2013 should finish at around 2.3%, according to Fannie Mae’s latest economic outlook.  This number is modest according to recovery standards.

Regardless, the rising home prices and housing recovery will give a growth cushion and should account for the biggest source of an upward trend in this economy.

Doug Duncan, Fannie Mae’s chief economist, believes that 2013 is off to a good start but expects the pace to slow in the second quarter compared to the first quarter.  Factors such as the euro-zone crisis, sequestration and tax hikes can all still affect the economic forecast; fiscal tightening will also affect consumer spending in the next few months.  Despite all this, however, the housing recovery is still broadening.

Residential investments have positively contributed to economic growth for seven quarters in a row, ending in 2012; a similar pattern is expected in 2013.  Housing has also been contributing to growth as home sales have been reaching highs since the beginning of the year.  Housing permits have also seen a large gain since the beginning of this year.

Builder confidence has come to a standstill with the Wells Fargo/National Association of Home Builders housing market index declining this month for the second month in a row to its lowest level since Fall 2012.  Sales expectations are expected to increase over the next six months.

Rising home prices should continue to help underwater borrowers to boost their net worth and help banks to be willing to make mortgage loans. 

All in all, the housing recovery should be increasing as a result of low mortgage rates supporting the market.  Multifamily housing should rise by 19% in 2013, and single-family starts are expected to rise 24% in the same time period.