Tuesday, June 28, 2011

Freddie Mac economist sees sunny economy in second half

Freddie Mac economist sees sunny economy in second half

June 28, 2011 at 8:33 AM | Categories: News | URL: http://wp.me/pPoVF-7u
Monday, June 27th, 2011
Freddie Mac Chief Economist Frank Nothaft said the overall economy should begin to accelerate in the second half of 2011 with an improved housing market close behind.
Nothaft said with the continued support of the Federal Reserve, monthly job gains will continue, bringing the unemployment rate toward 8.6% by the fourth quarter, according to his blog post Monday. Mortgage rates, he said, should remain between 4.5% and 5% over the rest of the year and recent price drops pushed affordability even higher.
Economic indicators sagged this spring. Unemployment inched up to 9.1% in May. Consumer confidence hit a six-month low and existing home sales plummeted 15.3% that same month. Confidence among small businesses and homebuilders lingers at historically low levels.
Nothaft said consumers uncertain about the overall economy are holding back on purchasing "big-ticket items" such as homes.
"Some potential buyers who have the means to buy are awaiting clearer signs that home values have firmed," Nothaft said.
When that occurs remains in question. The Standard & Poor's/Case-Shiller Home Price Index officially double-dipped this spring. Research from Altos Research said values should bounce up and down for an extended period of time. And Capital Economics analysts said a lack of demand should keep prices from a consistent rise until 2014.
But Nothaft said the rental sector is a lone bright sign in today's housing market. The National Multi Housing Council reported new debt and equity financing became more available. Vacancy rates on buildings with at least five apartments dropped over the past year and monthly rents rose.
"Even though near-term concerns over income and sales growth are restraining consumer spending, business hiring, and new building, a number of positive signs in the economy indicate that growth will continue and is likely to accelerate in the second half of this year," Nothaft said.
Anthony Sanders, a professor of real estate finance atGeorge Mason University, said with tumultuous changes coming to the housing market such as tightened purchasing standards and heightened guarantee fees at Fannie Maeand Freddie Mac, the future for housing remains cloudy.
"Mortgage rates are very low. House price declines are slowing in many areas of the country and level if not increasing in others. Mortgage delinquencies have slowed down," Sanders said. "But the economy is in a 'soft patch' and it is unclear how long that will last."
Nothaft remains optimistic, pointing to the encouraging signs in the rental market and noting home sales remain above last year's pace when tax credits first began to dry up.
"Look for a gradual improvement in housing activity in the coming year," Nothaft said.

 

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