Provided by Realty Times.com
The housing recovery is underway, most agree. But that assumes residential real estate is on a path to some level of normalcy that will be more sustainable than the last boom-bust housing cycle – the boom-bust cycle that took the economy down with it.
Fannie Mae recently swirled the tea leaves, gazed into the crystal ball and honed in on some hunches to describe what housing's move to "normal" will entail.
Fannie Mae is a government-sponsored enterprise (GSE), created to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities.
So, the GSE really went a lot further than soothsaying. It took stock of economic trends, the new regulatory protections, federal fiscal policy, the global economy and other indicators in an attempt to get a handle on what could be in store for housing and the economy in general.
But the GSE's recent white paper "Transition to 'Normal'?" comes with a question mark because clouds of uncertainty continue to hover over both the economy in general and real estate more specifically.
Both recoveries remain in a stage of infancy and are still too week to sustain the kinds of major "What ifs?" or "Oh, nos!" that always loom.
Fannie Mae says, given how long it's taken the nation to reach this point, don't expect skyrocketing home prices and a Wall Street gone wild.
'Below-potential growth'
"Our forecast is that 2013 and 2014 will exhibit below-potential economic growth. This is despite the fact that we expect the housing rebound will continue and that the economy will benefit from the gradual increased growth of U.S.-based manufacturing, as well as the expansion of domestic energy production," Fannie Mae sums it up.
More specifically, the report points to some positive trends that bode well for housing.
• If Washington can get it's act together, the move on Capital Hill is toward tighter fiscal policy – the government will write fewer checks it can't cash. That legislators are more focused on a sensible fiscal policy is a start.
• While there have been some rumblings the Federal Reserve's Federal Open Market Committee (FOMC) won't hold the economy's hand as long as originally planned, the Fed isn't likely to leave the economy twisting in the wind.
Rather than peg benchmark rate increases to some date on the calendar, say in 2015, the Fed plans to keep rates low until the unemployment rate is sustained at 6.5 percent. That more close ties the Fed's move to the economy.
• Thus far, Fed moves have helped keep mortgage rates low long enough to help support the recovering housing market with affordable financing. The Fed's recent Senior Loan Officer Opinion survey even revealed lenders are letting go of the purse strings, if only a bit.
Fannie Mae expects mortgage rates to remain relatively low and affordable "over the next few years," rising to no more than 4.2 percent by the end of 2014.
There could be greater costs assigned to Federal Housing Administration loans, as the FHA struggles to remain solvent.
And 2012 could have been the last year for the refinance boom.
"We expect 2012 to be seen as the high watermark for refinances and 2013 as the first of several transition years as the housing finance market transitions back to a more normal balance between purchase and refinance activity."
• Understandably, given the uncertainty, economic growth is low and slow, but sustainable. December revealed some resiliency in the job market and income growth reflected greater job security. Fannie Mae says to expect annualized growth of around 2 percent for the year.
• Autos are almost selling like hotcakes and housing isn't just blowing smoke. Both contribute to manufacturing, a major economic driver. Manufacturing should get a boost if business can count on more sensible fiscal policy from Washington, D.C. to help make hiring a growth industry.
Sticky housing recovery hopes
So long as those factors continue to converge and congeal, the housing recovery should stick.
Every month, reports reveal the recovery is picking up steam and holding it's own even through the traditional seasonal downturn of a "normal" market.
Foreclosures are declining from their peaks, foreclosure alternatives are more common and new household formation is on the rise.
Home builders can't build homes fast enough to offset shrinking inventories in both the new and existing homes market and that's pushing up prices, hopefully not faster than interest rates will rise.
Fannie Mae says housing starts should rise 23 percent in 2013, 60 percent more than the record low in 2010. Starts won't reach sustainable levels until 2016.
"Given our expectations of continued improvement in housing starts, home sales, and home prices in 2013, we project that purchase mortgage originations will rise to $642 billion from a forecast of $518 billion in 2012."
It's a start toward normalcy.
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