Labor market improvement bodes well for housing

lABOR MKTThe estimate from the Bureau of Economic Analysis (BEA) of sharply improved economic growth in the second quarter is good news for the housing market Freddie Mac’s lead economists said today.  The advance BEA report puts GDP growth at 4.0 percent in the second quarter compared to -2.1 percent in the first while Freddie Mac forecasts continued improvement in economic growth with an average of 3.3 percent in 2015 and a continued decline in unemployment.

Chief Economist Frank E. Nothaft and Deputy Chief Leonard Kiefer see household formations picking up and projects housing starts will increase 28 percent over the 2014 rate to 1.3 million units in 2015.  Long-term interest rates will likely move up with 30-year fixed-rate mortgages at about 5 percent by the end of next year.

The economists say one concern is the underperformance of the single-family housing markets over the last several years.  The single-family markets slowed after rates began to increase in mid-2013 and while both housing starts and sales moved higher in the second quarter of 2014 this shows at best they say that the housing market is very fragile.

The path forward is for a housing market driven by fundamentals.  Nothaft and Kiefer say jobs are a fundamental driver and with the employment sector picking up steam, more and better jobs should lead to greater housing demand.  The strongest housing markets today are those with the strongest labor statistics.  As the labor market expands it will stimulate housing by driving household formations and housing demands in more markets.

Information from Jann Swanson, Mortgage News Daily 


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