Freddie Mac Paints Realistic Picture of a 'Healthy' Market

The housing market is slowly but surely getting back up to speed, but don’t expect it to recover to peak levels, Freddie Mac says in its latest U.S. Economic and Housing Market Outlook.

In the November outlook, Freddie Mac takes into account recent trends, housing indicators, shifting demographic patterns to put together a picture of what makes a “healthy” housing market. According to the GSE’s projections, the current trajectory of the recovery should bring the market to a healthy state by 2017.

According to the data, housing starts should increase to about 1.7 to 1.8 million homes per year, a pace below the 2.1 million peak set in 2005. However, Freddie Mac VP and chief economist Frank Nothaft said the projected pace should be “much more sustainable” given the pace of household formations.

Starts in Q3 reached about 790,000, according to the GSE’s data.

Home sales are expected to increase to about 5 percent of the housing stock, or 6.5 to 7 million homes per year, compared with sales of 7 percent of the stock in 2005. At the same time, home price appreciation is anticipated to rise gradually to about 3 percent per year, far lower than 11 percent in 2005.

Meanwhile, Freddie expects vacancy rates to ease further to about 1.7 percent for on-sale homes and 8 percent for rental homes, down from peaks of about 3 percent in 2008 and 11 percent in 2009, respectively.

Seriously delinquency rates are forecast to hover near 2 percent, down from the peak of 9.5 percent in 2010.

While the projections may not impress those who expected a return to peak levels, Nothaft the slow but steady path will be better in the long run.

“What a healthy housing market should look like will dismay those who keep comparing housing to what it was during its peak years,” he said. “However, taking into account recent trends, key housing indicators and the shifting demographic patterns that will define a new and realistic trajectory toward a healthy housing market, the long-term prognosis is promising—just don’t expect the housing market to wake up at 98.6 degrees tomorrow morning.”

By: Tory Barringer, DSNews