Recently, the Bureau of Economic Analysis announced that
their third estimate of GDP growth in the third quarter of 2013 – which includes
more complete source data than in the first two estimates – leaped to 4.1
percent, which is great news for an economy in which 3.0 percent is considered fairly
robust.
Still, much of this increase was
due to private companies re-stocking inventories or investing in future
production, so GDP growth in the fourth quarter will likely be more
constrained.
Looking forward to 2014, however, the U.S. economy seems
poised to grow at the fastest rate since the dawn of “The Great Recession,”
with GDP growth averaging 3.0 percent versus the plodding 2.0 percent rate with
which we’ve been saddled over the past 4.5 years. In turn, this projected rate of growth could
push up monthly job growth to 250,000 versus 190,000 over the past years.
Should that occur, then the country would actually regain
all of the jobs lost by the end of 2014, thereby pushing the unemployment rate
closer to 6.0 percent or even 5.5 percent.
For those with a bachelor’s degree or higher, the rate is now down below
4 percent, which has helped to improve household incomes for the first time
since 2007. Employment gains are also
starting to trickle down to lesser-skilled jobs, with the unemployment rate for
workers without a high school degree falling two percentage points over the
last year.
Even problems outside the U.S. seem to be getting slowly
fixed, with most European economies improving and positive GDP growth for the
European Union. In addition, better
growth in China and Japan should help bolster U.S. exports, especially since a
dollar which is 25 percent cheaper than a decade ago makes our products even
more globally competitive.
Still, for the housing market there remain a host of mixed
signals.
One reason for the
still-subdued pace of homebuilding is due to continued regulatory uncertainty
in the banking sector due to the Dodd-Frank Act being incomplete, thus leaving
many lenders in limbo and less willing to lend versus previous economic
recoveries.
On January 10th, new mortgage rules set forth by
the Consumer Financial Protection Bureau will certainly impact the ability of
some potential homeowners to obtain the type of ‘qualified mortgages’ (no
longer than 30 years, fees and points no more than 3 percent of the loan
amount, no negative amortization or interest-only programs) eligible for
purchase by Fannie Mae and Freddie Mac.
While the actual impact on lending is difficult to predict, the Mortgage
Bankers Association has reported that many loan programs which allow for more
than a 95 loan-to-value ratio and low- to mid-range FICO scores have either
been discontinued or had the requirements adjusted accordingly. The data company Corelogic has also estimated that up to
12.8 percent of new mortgages made in 2012 would not meet the new “qualified
mortgage” standard.
Particularly
vulnerable are young people hoping to afford their mortgages by betting on
future raises, since it will soon be harder to obtain an adjustable-rate loan
because the new rules require lenders to estimate how high the rate and payment
may rise over the life of loan instead of simply underwriting on the teaser
rate alone.
Still, if the last few years
have been the domain of the housing investor, next year is likely to be the
year of the repeat home buyer, fueled in large part by existing owners who have
finally regained enough equity to consider moving up to larger quarters. Nonetheless, the combination of more supply
listed for sale, higher mortgage rates and fewer investors in the marketplace
will likely mean a more subdued rate of price appreciation (i.e., close to five
percent in 2014 versus over 10 percent in 2013).
According to NAR Economist
Lawrence Yun, higher mortgage rates – which could approach 5.5 percent by the
end of the year -- will cause refinancings to decline sharply in 2014, forcing
banks to increase their originations to make up for the shortfall. NAR is projecting existing home sales to
closely mimic the 5.12 million estimated for 2013, while limited inventory will
continue to push up prices.
For new homes, the NAHB is projecting
a 30 percent rise over 2013 levels to over 840,000 single-family starts, with a
lesser increase of about six percent in multi-family starts to nearly 320,000
units. Finally, the remodeling industry
will also continue to grow in 2014, albeit much more slowly than for new
construction, projected at 1.7 percent versus 2.4 percent in 2013.
In other words, Happy New Year!
Please click here to see the edition of BuilderBytes for 1/30/14 on the Web. 
Still, for the housing market there remain a host of mixed
signals. One reason for the
still-subdued pace of homebuilding is due to continued regulatory uncertainty
in the banking sector due to the Dodd-Frank Act being incomplete, thus leaving
many lenders in limbo and less willing to lend versus previous economic
recoveries.
