Amid continued low gasoline prices, firming labor market conditions, rising household net worth, improving consumer and business confidence, and reduced fiscal headwinds, the economy is expected to climb to 3.1% in 2015, up from Fannie Mae's estimate of 2.7% in its previous forecast.
The stronger economic backdrop should lead to improving income prospects, underpinning a higher rate of household formation in 2015. "Our theme for the year, Economy Drags Housing Upward
, implies that both housing and the economy will pick up some speed in 2015 and that the economy will grow at a faster pace," Fannie Mae Chief Economist Doug Duncan said. "Consumer spending should continue to strengthen due in large part to lower gas prices, giving further support to auto sales and manufacturing."
Fannie said it believes strong economic fundamentals will motivate the Federal Reserve to begin measures to normalize monetary policy in the third quarter of this year, continuing at a cautiously steady pace into 2016 and 2017, likely keeping interest rates relatively low for some time.
"Strength in the broader economy, accompanied by continued employment growth and meaningful income growth, should contribute to some improvement in housing activity this year," Duncan added. "Given historically low mortgage rates and a gradual easing of lending standards, our forecast calls for a 5.8% increase in total home sales for the year."
Most of the home sales growth is likely to come from increases in existing home sales, but Fannie Mae expects the rising share of new home sales to lead to a healthy surge in single-family construction of about 19%, or 765,000 units.
"Although we don’t view this as signaling a breakout year for housing, we do expect to see broad-based improvement in 2015 following a disappointing and uneven year for the housing recovery in 2014," Duncan said.
Driven by strengthening private domestic demand, economic growth is expected to accelerate modestly this year and drag last year’s unspectacular housing activity upward, according to Fannie Mae’s Economic & Strategic Research (ESR) Group.