Fannie Mae Offers Mixed Bag of Positive and Negative Housing Indicators

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The economists over at Fannie Mae released their April Economic and Strategic Research Report on Friday, and it seems that housing indicators remain mixed. Senior Vice President and Chief Economist Doug Duncan implied that the good and the bad seemed to balance out for the time being.

Let’s take a look at both the positives and negatives from the report. Bad news first.

NEGATIVE INDICATORS

The most obvious negative indicator was the fact that sales of existing homes dropped drastically during February, the last month for which numbers were available. One might suggest that the increase in sales for new homes is a positive, but that jump is rather unimpressive considering the slump that number underwent during January.

Builders’ confidence (according to the National Association of Homebuilders/Wells Fargo’s Housing Price Index) peaked at a 10-year high during October of 2015, but that too has levelled off in more recent months.

Fannie Mae suggested that the weak sales were the result of low inventories, especially in terms of low-priced homes. The number of completed new homes has certainly risen from the historic lows of 2010, however a low proportion of the current completions are “affordable.” As a result of all these findings, the number of listings aren’t keeping pace with the demand on the market. That means that even as mortgage rate levels remain low, the increased prices of housing will ultimately cancel it out.

Not all the news is bad. Let’s end on the positive:

POSITIVE INDICATORS

The good news regarding those low interest rates, even if they don’t match the rise in housing prices: They’ll almost certainly remain low following the Federal Open Market Committee’s meeting on April 27 and 28. Fannie Mae labeled the possibility of a rate increase as “off the table.”

Other financial variables also remain strong, as the stock market and commodity prices have returned to 2015 levels after a brief scare earlier this year, which in turn led to the value of the dollar (trade-weighted) weakening.

Although the news for completions may not be all that great, the numbers for starts are a touch more on the sunny side: Housing starts are moving in the right direction, with single-family starts jumping by more than 50,000 from January to February.

Employment numbers also continue to rise, and those between the ages of 25 to 34 as a percentage of the total workforce climbed over 21 percent.

“A sustained increase in income among young adults, more construction of starter homes, and continued introduction of new loan products geared towards those with low down payments would go a long way toward bringing more potential homebuyers into the housing market,” reads the report.

What does all of this mean in the long run? It seems Fannie Mae is sticking to its guns in the belief that mortgage originations will ultimately drop by 9 percent during 2016, to $1.56 trillion (40 percent of that being refinance share). The prognosis for 2017 brings the total production value down to $1.46 trillion.