Fannie Mae is out with its 2015 housing outlook and things are looking positive… sort of.
The group revised its previous GDP estimates to 3.1%, up from 2.7%, and said that the economy would “drag housing higher,” meaning that both the economy and housing will pick up speed this year, but the economy will improve at a greater clip. Fannie Mae currently forecasts a 5.8% increase in home sales for 2015.
“In this expansion, housing has been atypical in that it usually leads an economic expansion," says Doug Duncan, Chief Economist at Fannie Mae. After all, we've all heard investing legend Warren Buffett say housing, and real estate, drive the economy, and Duncan agrees. This recovery, though, is atypical. "This time[housing] has dragged... It’s a better year than 2014 and 2013 but it’s not the breakout year that some people are forecasting.”
That breakout year will only come once Millennials feel that their incomes are secure enough and mobility is less of an issue, says Duncan. After all, Millennials are known "job-hoppers" who may not be eager to sign up for a mortgage when they're not settled on a career. First-time homebuyer numbers have slipped, with the percentage of buyers at 33%, below the long-term average of 40% and at a 27-year low. According to the U.S. Census Bureau, almost half of Americans between the ages of 25 and 34 say they do not expect to purchase a home in the next three years.
Meanwhile, says Duncan, boomers have “peaked and they're moving off the scene.” Gen X’ers are driving the housing market, but they represent a much smaller population than Millennials or boomers. Until Millennials are ready to buy, we’re stuck in a holding pattern.
We’ll know housing is finally having its breakout year when we see growth clock in at around 10%, says Duncan. “I tend to look at the construction side of things. Our view is that when construction is aligned with our demographics, we’ll be building between 1.5 and 1.6 million housing units on an annual basis.” This year, Fannie Mae expects to see about 1.15 million units built, still quite a way from normal.
There's also the issue of credit; many believe tougher regulations on mortgages have caused a tightening of credit that's stifling the housing market. But Duncan disagrees: “Demand weakness trumps credit tightness." While credit is tighter, that matters less than the fact that people are concerned about employment and stabalizing income.
On the good news side of things, Duncan predicts that mortgage rates will remain steady through 2015. “We think the Fed is low for long and if they move to increase rates they’ll be short term rates and that won’t be until September,” he says. Overall, there’s probably “no better time to buy a house than today.”
As for gas prices, which many economists say will help drive consumer spending and the economy, Duncan says that boost won't extend all the way to housing. He sees the break from gas going towards paying down debt obligations and increasing current consumption but “in order for that to reflect on housing they’d have to believe that was a long-term change in the cost of gas and I don’t think they’re there yet.”
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