Housing to Remain Strong Throughout the Year, Predicts Fannie Mae by Lew Sichelman
Housing will remain relatively strong for the remainder of the year, according to latest forecast from Fannie Mae. And ironically, it could remain even stronger if the economy continues to surge. Fannie Mae Chief Economist David Berson doesn't think that will happen. In fact, his base-line forecast shows that the economy is already beginning to respond to Federal Reserve Board attempts to slow growth. But he also says it's not outside the realm of possibility that the economy hasn't run out of steam just yet. For the economy to remain at its current pace, consumer confidence and job growth must stay high. And if they do, people will continue to buy houses, even at relatively high mortgage rates. "It's unusual but not unique," the economist said. "The strength of the economy will more than make up for higher rates." Eventually, though, the Fed's effort to slow growth to the 3-3.5 percent rate its board of governors are seeking will pay dividends. But the longer it takes, the more bumpy the landing will be, not only for the economy as a whole by housing as well. However, while continued strong growth "cannot be ruled out." the Fannie Mae economist believes most of the recent signs indicate the economy is finally starting to coast downward into a Fed-engineered soft landing. "The odds favor that the recent economic data is a clear signal that the economy is beginning to decelerate," he said. Enough so the Fed may wait until August to again raise the federal funds rate. And then only to ensure the economy is slowing to the desired level. Berson's outlook calls for a further 50 basis point hike in the fed funds rate, driving the funds rate to 7 percent later this year. But that should be "the end of Fed tightening for this cycle," he predicted. The economist says that if he's correct, long-term interest rates may already have reached their peak for the year. While there's a possibility that rates may move up a bit over the next few months in anticipation of further Fed action, he added, they won't rise by much if they do go up. In anticipation of a higher rates, Fannie Mae has revised its forecast to indicate a larger falloff in home sales than originally anticipated. But because of the underlying demographics, Berson said sales of both new and existing houses will drop by just 7 percent, from last year's record pace of 6.1 million units to 5.68 million units. As refinancings have plunged, mortgage market activity has already declined considerably. And by year's end, the Fannie Mae economist predicted, originations will be off by 27 percent, from $1.14 trillion last year to about $967 billion this year. That's a third less than the record $1.5 trillion recorded in 1998, he pointed out. But it's still the fourth best year ever, and that's not bad. Furthermore, he added, the amount of purchase money mortgages written this year should come within only 2-3 percent of last year's record figure $782.6 billion vs. $797.5 billion. "It will be that close to setting another record." | 
