Fannie Mae has issued a very mixed report looking forward. While 24/7 Wall St. covered the report earlier on Monday, what stands out is not just that housing has been muted. Above and beyond the notion that 2015 may not be a breakout year that everyone seemed to have been hoping for, what is the biggest concern is that it seems possible that 2013 may have marked the peak of the housing market in total sales.
For starters, aren’t economic expansions supposed to come with increased home sales? Historically, yes. In the new world, perhaps not. Still, we would be quick to point out that homebuilder confidence recently took back off to the upside. At the same time, foreclosures rose again in July.
Fannie Mae’s Economic & Strategic Research Group showed that, outside of net exports and contrary to the first quarter, every main component of GDP contributed positively to growth in the second quarter. This included consumer spending, inventories, and employment. Fannie Mae is now targeting 3% GDP growth in the second half, and this helped Fannie Mae increase its full year GDP target to 1.9% GDP growth rather than a prior 1.5% GDP target. Another growth driver to 2014 GDP growth was a first quarter upward revision.
Again, the problem is housing – the part of the economy which Fannie Mae directly cares the most about. This housing outlook’s deterioration is after housing activity lost momentum at the end of the second quarter. Another drag is that near-term indicators are suggesting only minor improvement in the second half of the year. The only good news on the housing front is that Fannie Mae does at least think that residential investment should still contribute to growth in 2014 and 2015.
Fannie Mae said that consumers surveyed in the July National Housing Survey reported being more optimistic about their personal income and expenses, but they also responded that healthcare spending will affect consumers. What really stands out here is that Fannie Mae’s outlook is now not seeing 2015 as the breakout year for housing. The group also expects that total sales figures will be lower in 2014 than in 2013.
The report from Fannie Mae said,
“With respect to housing’s contribution to growth this year, we have downgraded our outlook following the disappointing housing activity seen during the first half of the year. The impact on mortgage rates from the market’s expectation that the Federal Reserve would soon start tapering their securities purchases, combined to some degree with the weather effect in the first half of 2014, led to very little seasonal growth in housing. In the first six months of the year, total sales have run below last year’s pace. Additionally, on the demand side, there appears to be a conservatism among consumers and their willingness to take on big-ticket purchases, such as homes. This leads us to believe that 2014 will finish lower in total sales figures than 2013 – and that 2015, while stronger than 2013 and 2014, will not be the breakout year some are expecting.”
It seems as though the homebuilders ETF, the iShares US Home Construction (NYSEMKT: ITB) ETF, did not get the memo about Fannie Mae’s concerns. That may have been due to a handy recovery in stocks on Monday. The ETF was up 1.9% at $23.40 in late Monday trading. Its 52-week range is $20.37 to $26.56. That gain is even simultaneously higher than the 0.8% gain in the S&P 500 and 1.01% gain in the DJIA on Monday.
Let’s just all hope that 2013 wasn’t the peak housing market for the nation.