Housing still slow, but recovery projected -- Freddie Mac

by Ryan Smith14 Aug 2014
Freddie Mac says that the economy is normalizing slowly but surely, and a strengthening labor market should drive a housing recovery.

“We are getting closer to a more normalized economy, and now we are expecting to see housing driven by fundamentals, and in fact, we've already seen this in some markets,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “The economic growth and labor market gains we saw in the second quarter of this year are projected to continue, strengthening household formations and the housing sector. A recovering housing sector will sustain the rally in homebuilding despite likely increases in long-term interest rates. Increased construction activity will further accelerate the improvement in labor markets and fuel even more household formations and more housing demand. The result is an economy that gradually recovers back towards its potential.”

According to Freddie’s latest US Economic and Housing Market Outlook, the labor market, weak for several years, is finally starting to pick up steam, adding 230,000 net new jobs in the first seven months of the year. The latest economic forecast has growth continuing at 3.3% through 2015 and the unemployment rate continuing to gradually decline.

It’s not all good news, however. According to Census Bureau figures, net household formations totaled only 458,000 over the last four quarters, falling far short of long-term projections that called for 1.2 million to 1.3 million new household formations per year.

The number of persons per household has also increased 2.6% since 2005, from 2.69 persons per household to 2.76 persons per household. If that number had held steady rather than rising, there would be an additional 3 million households today.

However, if economic growth continues as projected, household formations should pick up. Housing starts are also projected to spike 28% over 2014’s pace to 1.3 million next year.
 

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