Posts by Frank E. Nothaft
Frank E. Nothaft is Freddie Mac’s chief economist. Nothaft is responsible for forecasts, research and analysis of the macroeconomy, housing and mortgage markets. He is also involved in affordable lending analysis and policy issues affecting the housing finance industry.
'Tis the season to look back at the year, reflect, and, of course, make a list (sometimes checking it twice). In keeping with the spirit of the season, we decided to take the lead from the late Ed Koch, former mayor of New York City, who was known for asking his constituents, "How'm I doin'?" This month we look back at consensus projections for five key housing and mortgage indicators in 2014 and ask "How'd we do?"
A pickup in household formations and overall housing activity depends greatly on the pace of economic growth. The good news for 2015 is that the U.S. economy appears well poised to sustain about a 3.0 percent growth rate in 2015 – only the second year in the past decade with growth at that pace or better. There are several reasons for the expected better macroeconomic performance. Governmental fiscal drag has turned into fiscal stimulus, lower energy costs support consumer spending and business investment, further easing of credit conditions for business and real estate lending support commerce and development, and more upbeat consumer and business confidence, all of which portend faster economic growth in 2015. And with that, the economy will produce more and better paying jobs, providing the financial wherewithal to support household formations and housing activity.
Freddie Mac's latest U.S. Economic and Housing Market Outlook concludes that the nation's economy is gradually getting back to a more normal level of activity, and therefore we expect to see housing demand and supply increasingly driven by fundamentals – in fact, we've already seen this in some markets.
We, like many, expected more out of housing so far this year. Existing home sales were down 6 percent while new home sales were unchanged during the first five months of 2014 compared with the same time last year. Single-family housing construction was lackluster too with building permits slipping 2 percent and housing starts up a meager 1 percent over this same five-month window. One of the few bright spots in housing activity occurred for multifamily rentals: starts of buildings with five or more apartments jumped 16 percent during January through May compared with a year ago, and vacancy rates on rental apartments tracked by Reis dipped to 4.0 percent in the first quarter, down from 4.4 percent a year earlier, and the lowest recorded by the firm since 2000. That's great for the rental industry, but also means your rent is going up.
It has been more than seven years since the beginning of the deepest housing recession since the Great Depression. As housing activity fell, nervous speculation took off in the media and industry about when (if ever) housing would get back to normal. Given the pickup in sales, new construction, and home values over the past couple of years, it’s fair to ask if we’re there yet: is the U.S. housing market back to a normal range of activity with a good balance between demand and supply forces?