The recovery in the housing market will continue to strengthen this year and next year, according to a group of bank economists.
They are forecasting that new home sales will be up 25% this year compared to 2012 and home prices will rise 5% to 6% in 2013 and 2014 based on the Federal Housing Finance Agency house price index.
The consensus forecast of the American Bankers Association economic advisory committee sees 15% growth in residential construction this year and in 2014.
“This strong growth demonstrates that the housing market has finally caught up with the broader economic recovery,” said Scott Anderson, chief economist at the Bank of the West.
The economists see the rate on the 30-year fixed-rate mortgage rising to 4.3% by the end of this year and 4.6% in the second quarter of 2014.
However, the mortgage market is still dependent on the Federal Reserve purchasing MBS and keeping interest rates relatively low. “A premature exit from accommodative policy by the Federal Reserve could hurt the housing recovery and the broader economy,” Anderson warned.
The consensus forecast calls for continued slow economic growth through the third quarter of this year due to budget cuts and fiscal drag combined with slow global growth.
But the bank economists expect economic growth will accelerate later this year to 2.8% in first half of 2014 due to the recovering housing market, resilient consumer spending as well as less fiscal drag and a pickup in the global economy.
Meanwhile, new hiring will accelerate later this year and jobs growth will hit the 200,000 per month in 2014.