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Refinancing is Out. Home Buying is In!

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by Courtney Soinski

Are you thinking about refinancing your home this year?  Take a breather and listen to what the expert economists have to say about mortgage rates, housing starts, and new household creations in 2014.

Let’s take a look back.

When our economy was going through the housing boom, the U.S. was producing 1.4 million additional households every year.

In the aftermath of the Great Recession, there is a significant pent-up demand to form households and even to build homes.  At least 3 million fewer households formed over the past five years than would normally have been expected.  During this period, many college graduates were forced to double-up or move in with their parents.

However, we have come an incredibly long way since then.  Over the past year, there has been a significant revival of single-family home production.

What does this mean for 2014?

Housing will continue its climb toward higher ground this year.  According to NAHB Chief Economist David Crowe, consumer confidence has returned to pre-recession levels and year-over-year household formations are on the rise.  In fact, they are now averaging 620,000 compared to just 500,000 during the housing downturn.

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There will be an upward pressure on mortgage rates this year, but don’t worry – it’s not enough to harm housing affordability.  As mortgage rates gradually rise, fewer homeowners will look to refinance. Also, purchase originations are expected to increase as the overall housing market strengthens.

“As we move into the 2014 home buying season, it will be a market dominated by home buying originations rather than refinance originations,” says Frank Nothaft, vice president and chief economist at Freddie Mac.  “This will be the first time since 2000 that purchase originations will dominate the market.”

For more information, visit www.nahb.org.

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Mortgages, Housing Starts & New Household Creations in 2014 – What You Need to Know.

housingmarketOver the past year, there has been a revival of single-family home production.  What does this mean for 2014?  Housing will continue its climb toward higher ground this year, but builders are still confronting several challenges, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show (IBS).

NAHB Chief Economist David Crowe explains that consumer confidence has returned to pre-recession levels and household balance sheets are on the mend.  Year-over-year household formations are on the rise and now averaging 620,000 compared to just 500,000 during the housing downturn.

At the height of the housing boom, the U.S. was producing 1.4 million additional households each year. Meanwhile, new-home sales are averaging just 8.7 percent of total home sales—barely half the historical average of 16.1 percent.  However, builders still face several headwinds, including rising building material prices, persistently tight mortgage credit conditions, difficulties in obtaining accurate appraisals and limited availability in labor and developed lots.

NAHB forecast for 2014:

• 1.15 million total housing starts in 2014, up 24.5 percent from 2013’s 928,000 units.
• Single-family production projected to rise 32 percent to 822,000 units and surge an additional 41 percent to 1.16 million units in 2015.
• 333,000 multifamily starts, up 9 percent from 306,000 in 2013.
• Single-family home sales are projected to hit 584,000 this year, a 35.9 percent increase above last year’s 430,000 sales.
• Residential remodeling activity is expected to register a modest gain this year over 2013.
• A slow and steady housing recovery will bring nationwide housing starts to 71 percent of normal by fourth quarter 2014 and 93 percent of normal by the end of 2015, says Crowe.
• On a state level, the top 20 percent of states will be back to normal production levels by the end of 2015, compared to the bottom 20 percent, which will still be below 84 percent.

mortgage-rates-300x300Mortgage rates up, but housing still affordable

As the economy strengthens and the Federal Reserve tapers its buy-back of mortgage-backed securities, there will be upward pressure on mortgage rates, but not enough to harm housing affordability, according to Frank Nothaft, vice president and chief economist at Freddie Mac.

Nationally, Nothaft expects that home sales and prices will each rise about 5 percent in 2014, and that housing starts will post a 20 percent gain.

“As we move into the 2014 home buying season, it will be a market dominated by home buying originations rather than refinance originations,” says Nothaft. “This will be the first time since 2000 that purchase originations will dominate the market.”

He says the reason for the change is because so many households looking to refinance have already done so, and as mortgage rates gradually rise, fewer homeowners will look to refinance. Further, purchase originations are expected to increase as the overall housing market strengthens.

Pent-up demand will fuel growth

In the aftermath of the Great Recession, there is a significant pent-up demand to form households and even to build homes.

At least 3 million fewer households formed over the past five years than would normally have been expected.  During this period, many college graduates were forced to double-up or move in with their parents. Stronger job growth and a strengthening economy in 2014 should lead to a rise in household formations, which will be important to supplement housing demand.

“I think this will be a pretty good year for home construction,” says Real Estate Expert and Economist David Berson. “There will be a big increase in single-family construction, but not as much for multifamily.”

For more information, visit www.nahb.org.

Reprinted with permission from RISMedia. ©2014. All rights reserved.

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Expectations for Homes Sales This Spring the Highest Since 2007

Freddie Mac recently released its U.S. Economic and Housing Market Outlook through March showing that as we head into the spring home buying season, continued low mortgage rates, increasing house prices, and gradually improving consumer confidence will help support increased home sales. A short preview video and the complete March 2013 U.S. Economic and Housing Market Outlook are available here.

Outlook Highlights

• Compared to 2012, expect home sales to be up 8 to 10 percent for 2013.
• Expect housing starts to increase to 950,000 units for 2013, compared to 780,000 in 2012.
• In 2012, real estate added $1.5 trillion to balance sheets, and residential mortgage debt outstanding increased by 0.1 percent in the fourth quarter of 2012, indicating household deleveraging might be drawing to a close.
• Because of sequestration spending reductions, expect the unemployment rate in 2013 to average about 7.8 percent, essentially flat for the year or about 0.25 percentage points higher than it otherwise would have been.
• Regardless, the housing wealth effect is taking hold in the broader market which should translate into the healthiest spring home buying season since 2007.

“History shows us not all economic recoveries are created equal and consumer confidence mirrors this fact,” says Frank Nothaft, Freddie Mac vice president and chief economist.

“With the spring home buying season upon us, the recent highs in the stock market are a welcome signal of better times ahead. But it will be the gradually declining unemployment rate and steadily improving housing market that will deliver broad-based economic benefits for Americans and, in turn, support the overall recovery.”

For more information, visit www.FreddieMac.com.

Reprinted with permission from RISMedia. ©2013. All rights reserved.

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