Mortgage Update
Economic Update
U.S. Economy:
According to economists at the UCLA Anderson Forecast, the housing market will slow later this year, hurting U.S. economic growth, but not pushing the nation into recession, at least in the near term. In their quarterly forecast, UCLA economists anticipate slower economic growth through 2006, though they predict there is virtually zero chance of a recession before April 2006, the end of their forecast window. Forecast Director Edward Leamer noted that “later is not necessarily better” for a correction in the housing market, as each month of higher prices increases the size of the adjustment ahead. The UCLA analysis predicts housing starts, now running about 2 million units annually, are outpacing demand and will start to decline late this year, slowing to a 1.6 million rate by the middle of 2006. U.S. economic growth, 3.5% on an annual basis in the first quarter of 2005, is expected to fall to about the 1.5% range by mid-2006. If interest rates were to spike or home prices plunge, the slowdown could be greater, the report said. The record housing market has helped propel the economy since the 2001 recession, as consumers have bought houses in record number or borrowed against the increased value of their homes. But the UCLA economists don’t see home equity or income gains strong enough to provide a big boost to spending ahead. Higher business spending or stronger exports aren’t expected to take up the slack caused by a downturn in the housing market.
Real Estate Watch:
Housing starts held steady in May, the government reported last week, as the reading on the strength of the real estate market came in below Wall Street expectations. The Census Bureau reported that housing starts hit an annual pace of 2.01 million new homes in May, up 0.2 percent from the rate in April. Economists surveyed by Briefing.com had forecast starts at a 2.05 million pace in May. The number of building permits, a sign of builder’s confidence in the housing market, slowed in May. The government report showed an annual pace of 2.05 million permits in the period, compared with a revised 2.15 million rate in April. Economists had forecast a slower decline in the rate to 2.11 million in May. While there was little change in overall housing starts, single family home starts posted a nearly 5 percent gain to an annual pace of 1.7 million. But the pace of starts for apartment buildings or condos with five or more units fell 19 percent in the period to an annual rate of 266,000. Most of the slowing in building occurred in the South, the region responsible for roughly half the nation’s home building. Single family home building fell nearly 8 percent, and multi-family housing starts fell by almost a third. National Association of Home Builders Chief Economist David Seiders said that even though the numbers showing decline — multi-family building and home building in the South are coming off very high numbers in April — the May numbers still look solid, especially as mortgage rates stay low.
Sources: USA Today, CNN/Money
Compiled by Donald Ster, Homebanc,dster@homebanc.com
