Fannie Sees Sales Plunging as Prices Rise

Fannie Mae’s economists downgraded their outlook for 2014 sales following the disappointing housing activity seen during the first half of the year but remained bullish on the housing market’s ability to consolidate it price gains this year.

According to the forecast in Fannie’s August Housing Forecast, home sales will fall 3.2 percent below last year’s level of 5,519,000 units

“The August outlook supports our expectation that the economy will grow in the second half of the year at slightly above trend and push full-year growth into positive territory, albeit still weak by historical standards,” said Fannie Mae Chief Economist Doug Duncan. “We expect the forecast will get a boost from consumer spending, which appears positive in the current quarter given the improving trends in personal income and hiring. Additionally, consumers surveyed in our July National Housing Survey reported being more optimistic about their personal income and expenses despite a more pessimistic view about the direction of the economy. However, how healthcare spending will affect consumers poses a significant uncertainty given the substantial revisions on the healthcare front.”

“The impact on mortgage rates from the market’s expectation that the Federal Reserve would soon start tapering their securities purchases, combined to some degree with the weather effect in the first half of 2014, led to very little seasonal growth in housing. In the first six months of the year, total sales have run below last year’s pace. Additionally, on the demand side, there appears to be a conservatism among consumers and their willingness to take on big-ticket purchases, such as homes,” said Duncan.

“We currently estimate that 2014 will finish lower in total sales figures than 2013 – and that 2015, while stronger than 2013 and 2014, will not be the breakout year some are expecting,” he said.

Prices are predicted to rise 5.6 percent in 2014 after increasing 7.6 percent in 2013. Despite sluggish sales prices are expected to rise another 4.5 per cent next year.

“The outlook for the housing market has deteriorated as housing activity appeared to have lost momentum at the end of the second quarter and near-term indicators suggest only minor improvement in the second half of the year. Although residential investment still is expected to be a contributor to growth in 2014 and 2015, it does not appear likely to be a growing driver of growth going forward, as expected in the prior forecast,” said the outlook.