2014 Economic Recovery to be Led by 'Resurgent Housing Sector'

Mortgage giant Freddie Mac is expecting a good 2014 for housing. Economists predict a much stronger economic recovery will take hold next year, “led by a resurgent housing sector,” according to Freddie Mac’s November U.S. Economic & Housing Market Outlook report. Despite rising interesting rates and home values, Freddie Mac economists believe “housing will remain generally affordable in most parts of the country.”

“Even if rates were to go to 5 percent next year, housing in most of the country would remain affordable,” Frank Nothaft, Freddie Mac’s chief economist, notes in the report. “Large metro areas along the Atlantic and Pacific coasts are already expensive for the typical family, so rising rates will have a bigger effect there. But in most of the country, incomes and home prices are such that rising rates by themselves will not be enough to end the recovery. What we need is some better income growth.”

Economic growth is expected to be in the 2.5 percent to 3 percent range, more than half a percentage point better than what is expected for this year. Economic growth will help spur more jobs, and Freddie economists predict that the unemployment rate will fall below 7 percent by mid-2014.

Freddie predicts that in 2014 single-family home sales and housing starts will reach their highest levels since 2007.

Buyers will likely face increasing borrowing costs, with mortgage rates expected to continue to rise in 2014, Freddie predicts. Mortgage rates have climbed about a full percentage point since early May.

“We look for fixed-rate mortgage rates to creep higher in 2014, gradually moving up throughout the year and ending at close to 5 percent,” Nothaft notes. “However, expect some volatility in the short-term from renewed concerns about the debt ceiling or other fiscal policy.”

Source: Freddie Mac November 2013 U.S. Economic & Housing Market Outlook