New construction and home sales should improve, but numbers will fall short of a full recovery , said Freddie Mac’s most recent economic outlook report, “Peering Into 2012,” released today.
The report projects a 3 percent to 5 percent bump in sales year-over-year, driven by a lack of inventory, due to construction stalls since the downturn, and continued low mortgage rates. However, ample demand for distressed properties continues to depress home values, and the report states that the market has likely not yet bottomed out.
Mortgage rates should remain low, however, with Operation Twist — the Federal Reserve’s program to sell shorter term assets and buy longer-term assets — keeping fixed-rates for 15- through 30-year mortgages low during the first half of the year at least. Rates should climb during the second half of the year, as the program expires, the report says.
Less single-family refinance activity is projected, but more multi-family originations are expected due to pent-up demand for refinancing for multi-family properties. Credit constraints for many single-family homeowners, and the fact that credit borrowers have already refinanced are cited as reasons for the decline in single-family refinancing.
But for the economy as a whole, Freddie Mac’s projection is optimistic — economic growth has accelerated in the fourth quarter of 2011 and should come in at between 2.5 and 3 percent, supported by stronger retail sales, a substantial gain compared with the 1.2 percent growth in the first three quarters. — Guelda Voien