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Housing Market Still Needs Fannie Mae, Says Chief Economist Doug Duncan

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No matter what indicator you look at, the housing market is improving. New and existing home sales are rising. So are home prices. Even foreclosures are declining. In the latest housing data release, the National Association of Home Builders Wednesday reported that the housing recovery has spread to 70% of the 361 metro markets tracked by an NAHB/First American index compared to just 3% in September 2011.

Fannie Mae, the government-sponsored enterprise which buys and packages mortgages into securities for investors, says its own survey of consumers shows increasing optimism about the housing market, and the broader economy.

“We ask one question that nobody else asks,” Chief Economist Doug Duncan tells The Daily Ticker. “Is it a good time to sell a house [because] five out of six people who buy a house have to sell one first. That’s been a steady climb month over month.”

And the rebound in housing “will be the support” for the broader economy, says Duncan.

Some analysts like David Stockman worry that the housing is forming another bubble financed once again by extremely low interest rates maintained by the Federal Reserve. Duncan says that could be the case in some selected housing markets where prices are rising at a faster rate than the local economy is improving and building exceeds demand, but it's not broad based. He expects home price appreciation will slow as a result of some overbuilding.

Related: This is Housing Bubble 2.0: David Stockman

Fannie Mae's chief economist says there are also concerns about low Fed rates—near zero now vs. 1% during the previous housing bubble--contributing to a finance bubble.

“The Fed’s balance sheet is four times the previous high and a big buildup of that has been mortgage-related,” says Duncan. “Their explicit intent is to put a cushion under the decline of house prices...and to see some appreciation so people feel wealthier…. and that will increase consumption.”

The Fed has succeeded in its goal but there’s no financial bubble yet, says Duncan.

Related: Existing Home Sales Slip in December, But Housing Remains Strong

Fannie Mae is also helping the housing market recover and Duncan says it will "continue to play an important role in the housing market, providing liquidity” since private capital is not easily available.

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