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Fannie Bets on Builders

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Fannie Mae’s latest economic outlook for the year is counting on housing to double its contribution to GDP in 2014, largely due to new homebuilding activity.

“Our full-year 2014 economic forecast accounts for three key growth drivers: an acceleration in spending activity from private sector forces, waning fiscal drag from the federal government, and continued improvement in the housing market,” says Fannie Mae Chief Economist Doug Duncan recently.

“The continued housing recovery also is expected to contribute to GDP, doubling from 0.3 percentage points in 2013 to 0.6 percentage points in 2014, due in large part to new homebuilding activity,” says Duncan. “Despite the rise in mortgage rates since the spring, many housing indicators posted strong gains at the end of 2013 and consumer housing attitudes are strengthening, all of which bodes well for continued but measured housing recovery in 2014. Overall, although we don’t expect growth to break the 3 percent barrier this year, we believe the economy is on a sustainable path for continued growth with upside potential.”

Duncan’s optimistic prediction comes in light of several months of Fannie Mae consumers surveys finding declining consumer sentiment for housing, among both sellers and buyers.

Fannie Mae’s current forecast for the year calls for a 23.6 percent increase in housing starts, after a 16 percent increase in 2013. Total home sales are slated to increase 1.7 percent for both new and existing homes, to 5.27 million in 2014. However, new sales are expected to rise 20.3 percent.

Median prices are expected to rise 6.2 percent this year, a more aggressive forecast than most other economists’ predictions. One reason may be that Fannie Mae expects mortgage rates to top out at 4.3 percent on a 30-year fixed.

For more information, visit www.realestateeconomywatch.com.

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