January 23rd, 2015
The U.S. economy has been performing well in recent months, and the housing market has reflected those improvements.
Fannie Mae predicts this harmonious relationship will continue in 2015. According to the government-sponsored enterprise’s 2015 economic outlook, the economy will stay on its upward trajectory and bring the housing market along for the ride.
“Our theme for the year, Economy Drags Housing Upward, implies that both housing and the economy will pick up some speed in 2015, but that the economy will grow at a faster pace,” said Doug Duncan, Fannie Mae chief economist. “Strength in the broader economy, accompanied by continued employment growth and meaningful income growth, should contribute to some improvement in housing activity this year.”
Key factors in the 2015 housing market
Duncan pointed to historically low mortgage rates as one main contributor to the projected success for housing this year. In fact, Freddie Mac’s latest primary mortgage market survey supported that claim. The average interest rate for a 30-year fixed-rate mortgage dropped to 3.63 percent in the week ending Jan. 22, down from 3.66 percent the week prior and marking the lowest rate since May 2013.
Additionally, Duncan cited looser lending standards as a boon for homebuyers. Not long ago, Fannie and Freddie said they would offer loans requiring as little as 3 percent down, a key benefit for many consumers who couldn’t save up the traditional 20 percent down payment. If those savings weren’t enough, the U.S. Federal Housing Administration announced it will reduce mortgage insurance premiums.
Economic prosperity on the horizon
With the economy performing well, particularly in regard to employment, more consumers may be encouraged to take the leap into homeownership. Not only will these effects aid housing, but they will also ripple to other sectors.
“Consumer spending should continue to strengthen due in large part to lower gas prices, giving further support to auto sales and manufacturing,” Duncan said.
The economist went on to note that continual economic improvements could convince the Federal Reserve to take on a less accommodative monetary policy starting in the third quarter. However, he predicted this will be a gradual change, which will keep interest rates down for a bit. This means consumers have some time to obtain more affordable financing while they face advantageous job opportunities and lower fuel prices.