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economic_outlookEconomic growth mildly contracted in the first quarter of 2015, but will pick up in the second quarter and second half of the year. For the year as a whole, GDP will expand at 2.1 percent: not a bad number, but not great. The growth rate would also mark the tenth consecutive year of subpar performance in terms of growing at less than 3 percent a year, the historical average growth rate. Despite the sluggishness, the job market is strengthening. In June, 223,000 net new jobs were added. The total comes to 2.9 million over the past 12 months. These gains will provide a solid support for home sales. At the same time, the unemployment rate fell to 5.3 percent, the lowest since 2008. In addition, the jobless filings for the country as a whole have been rapidly falling, which implies a lower level of fresh layoffs and factory closings. That assures continuing solid job growth in the second half of the year.

Not all is right with the labor market, however. Due to low oil prices, the jobs in the oil extraction industry fell for the sixth time in the past seven months. Unemployment insurance filings have been rising in the oil-producing states of Texas and North Dakota. Sadly, more people have left the labor force with no jobs and have stopped searching for one. Fewer people looking for jobs is the principle reason for the latest fall in the unemployment rate. Moreover, there are 4 percent of workers who are in part-time status involuntarily, compared to the 2 percent that would be considered normal. The average hourly wage rose to $20.99, which is a gain of just 1.9 percent from one year ago. Both home prices and rents are rising much faster. Workers are getting the benefit of lower gasoline prices, but they still have to fork over more for shelter.

Consumer spending grew at 2.1 percent rate in the first quarter. Look for a 3 percent growth rate in the second half. Business spending was flat but will surely rise because of large cash holdings and high profits. Only business confidence appears missing. The “animal spirit” of entrepreneurship, as reflected by the number of small business start-ups, remains surprisingly low at this phase of economic expansion.

As to the housing market, existing-home sales in May hit their highest mark since 2009, when there was a homebuyer tax credit helping to incentivize buyers. This tax credit is no longer available but the improving economy is providing the necessary motivation and financial capacity to buy. Meanwhile, new-home sales hit a seven-year high, and housing permits to build new homes hit an eight-year high. Pending contracts to buy existing homes hit a nine-year high. Buyers are coming back in force, and one factor for the recent surge could be due to the rising mortgage rates. As nearly always happens, the initial phase of rising rates nudges people who are on the fence to make a decision now rather than wait later when the rates could be higher still.

First-time buyers are scooping up properties, with 32 percent of all buyers being first-time buyers compared to only 27 percent one year ago. A lower fee on FHA mortgages is helping. Investors are slowly stepping out, as higher home prices are making the rate-of-return numbers less attractive.

While buyers are back, however, sellers are not. Inventory remains low by historical standards in most markets. In places like Denver and Seattle, where very strong job growth is the norm, the inventory condition is unreal – less than a one-month supply. The principal reason for the inventory shortage is the cumulative impact of homebuilders not being in the market for well over five years.

Because of the housing shortage and because spec homes are being sold in three months on average (compared to 10 to 14 months just a few years ago), homebuilders will construct more homes. Housing starts will reach 1.1 million in 2015 and 1.4 million in 2016.

The Federal Reserve will be raising short-term rates soon. September is a possibility, but it’s more likely to be in October. The Fed will also signal the continual raising of rates over the next two years. This sentiment has already pushed up mortgage rates. They are bound to rise further, particularly if inflation surprises on the upside, which it will most likely do. The influence of low gasoline prices in bringing down the overall consumer price inflation to essentially zero in recent months will be short-lived. By November, the influence of low gasoline prices will no longer be in play because it was in November of last year when the oil prices began their plunge. In other words, by November, the year-over-year change in gasoline prices will be neutral (and no longer a big negative).

Other items will then make their mark on inflation. Watch rents in particular—they are already rising at a near eight-year high, with a 3.5 percent growth rate. The overall CPI (consumer price index) inflation could cross the red line of above 3 percent by early next year. The bond market will not like it and the yields on all long-term borrowing will rise. Mortgage rates will be at 4.3 to 4.5 percent by the year end and easily surpassing 5 percent by the year end of 2016. Though higher, they are still at historically attractive levels. A stress test implies mortgage rates of 6 percent before home sales turn downward.

All in all, existing- and new-home sales will be rising. Combined, there will be 5.8 million home sales in 2015, up 7 percent from last year. Note the sales total will still be 25 percent below the decade-ago level during the bubble year. Home prices will be rising at 7 percent. For the industry, business revenue will be rising by 14 percent in 2015. Revenue growth in 2016 will be an additional 7- 10 percent.

Lawrence Yun is the chief economist for the National Association of Realtors®.