Market Set to 'Bloom' as Spring Buying Season Begins

By: Tory Barringer, DSNews.com

While a few stumbling blocks remain, Freddie Macinsists the economy is finally headed “from gloom to bloom” this spring.

The GSE released Wednesday its U.S. Economic and Housing Market Outlook for March, showing that low mortgage rates, rising prices, and gradually improving consumer confidence will bolster home sales as the homebuying season starts.

Compared to 2012, experts at Freddie Mac expect home sales to increase 8 to 10 percent this year, coming to about 5.4 million units sold by year’s end.

With inventory remaining tight and home sales picking up in many markets, the demand for new single- and multifamily housing should result in more construction, higher new home sales, and greater construction employment. Housing starts are forecast to increase to 950,000 units for 2013, up from 780,000 last year.

On the topic of prices, Freddie Mac expects an average 4.0 percent appreciation in 2013, with 0.8 percent price growth in Q1 being cut down by 0.8 percent depreciation in Q4. The two middle quarters are each expected to see 2.0 percent appreciation.

The news isn’t all good, however. On the economic front, the enactment of the sequester in March spurred the GSE to slice half a percentage point off its economic growth projections. Budget cuts will also likely result in lower employment growth, which in effect will dampen housing somewhat.

With spending reductions going into effect throughout the year, Freddie Mac predicts the unemployment rate will average about 7.8 percent for 2013, essentially flat for the year but about 0.25 percentage points higher than it would have been otherwise.

With modest growth and high unemployment, long-term interest rates will creep up at a more gradual pace and will likely remain below 4 percent throughout 2013.

Flagging consumer confidence is another concern. March’s preliminary release of the Thomson Reuters/University of Michigan consumer sentiment measure shows the sentiment index coming in at 71.8, well below consensus expectations of 78.0. While the stock market has shown improvement—boosting confidence for higher-income families—slow employment growth continues to exert downward pressure on confidence for lower-income households.

Regardless, experts insist the long-term picture looks brighter as the economic recovery starts to reach more and more areas of the United States.

“History shows us not all economic recoveries are created equal and consumer confidence mirrors this fact. With the spring homebuying season upon us, the recent highs in the stock market are a welcome signal of better times ahead,” said Frank Nothaft, VP and chief economist for Freddie Mac. “But it will be the gradually declining unemployment rate and steadily improving housing market that will deliver broad-based economic benefits for Americans and, in turn, support the overall recovery.”