Economic growth is poised to accelerate to 2.6 percent in the second half of the year, a rebound from the lackluster growth of 1.0 percent in the first half of 2016, according to Fannie Mae’s September 2016 Economic and Housing Outlook.
Their Group’s full-year 2016 forecast remains at 1.8 percent, consistent with a prior forecast. Consumer and government spending are expected to drive growth despite a cool down in consumer activity so far in the third quarter. At the same time, inventory investment and net exports are likely to drag on growth and nonresidential and residential investment are expected to be neutral for the year.
“Consumers continue to carry the economy and the earnings slowdown in the August jobs report may be an aberration in the recently improving personal income growth trend,” says Fannie Mae Chief Economist Doug Duncan. “However, the declining trend in business productivity has negative implications for businesses’ profit outlook, as low productivity tends to boost labor costs, which could act as a headwind for hiring and investment. Corporate profits are down 4.9 percent from one year ago, extending their streak of annual declines.”
“A bright spot for housing market activity is the strengthening of new home sales, which is significantly outperforming activity in recent years,” says Duncan. “The share of new home sales that are under construction or not started has climbed to nearly 70 percent, improving the outlook for single-family home-building. Existing home sales under-performed 2015 for the first time in July, however year-to-date sales are still 2.6 percent higher than during the same period last year. Additionally, the share of for-rent multifamily building starts has trended up with recent trends in home-building activity favoring the rental market.”

Housing Shortage in Major Markets

Single-family home construction is currently lacking in 80 percent of metro areas despite steady job creation. The low activity is creating a shortage that is curtailing affordability according to new research from the National Association of Realtors.
The NAR’s study reviewed new home construction to determine the markets with the greatest shortage of single-family housing starts. The findings reveal that single-family construction is underperforming in most of the U.S.
Lawrence Yun, NAR chief economist, says, “Inadequate single-family home construction since the Recession has had a detrimental impact on the housing market by accelerating price growth and making it very difficult for prospective buyers to find an affordable home – especially young adults,”
NAR analyzed employment growth in relation to single-family housing starts in the three-year period from 2012 through 2015. Historically, the average ratio for the annual change in total jobs to permits is 1.6 for single-family homes. The research found that 80 percent of measured markets had a ratio above 1.6, which indicates inadequate new construction in most of the country.
The top 10 metro areas with the biggest need for more single-family housing starts are New York, Dallas, San Francisco, Miami, Chicago, Atlanta, Seattle, San Jose, Denver, and San Diego. Their healthy job markets continue to attract an influx of potential homeowners, only fueling the need for more housing.
Single-family housing starts are seen as adequate to local job growth in Pensacola, Florida; Huntsville, Alabama; Columbia, South Carolina; and Virginia Beach, Virginia.

Commercial Real Estate Expansion Foreseen

Buoyed by a steadily improving labor market and strong demand for multifamily housing, commercial real estate activity should remain on an upward trajectory, with a growing share of it is expected to be in smaller markets, according to the National Association of Realtors quarterly commercial real estate forecast.
National office vacancy rates are forecast to fall 1.5 percent to 10.4 percent over the coming year as employment gains boost demand for office space. The vacancy rate for industrial space is expected to decline 0.7 percent to 8.7 percent, and retail availability to decrease 1.0 percent to 10.5 percent. Only vacancies in the multifamily sector are expected to edge higher over the next year, from 5.9 percent to 6.1 percent, as new apartment construction comes to the market.
Lawrence Yun, NAR chief economist, says the commercial real estate sector is on firm ground in spite of the numerous global and domestic headwinds that continue to keep U.S. economic growth in a headlock. “Ongoing overseas weakness and the slowdown in business investment despite historically low interest rates held second quarter growth at a tepid and disappointing pace,” he said. “Only steady job creation, solid consumer spending and residential construction – albeit not enough of it – kept the economy afloat during the first half of the year.”
Adds Yun, “Strengthening local job markets has fueled sustained demand for commercial space and has pushed vacancy rates down in all commercial sectors. A growing concern from Realtors®, who mostly have clients that rely on financing to secure deals, is that underwriting standards have stiffened in light of increased regulatory scrutiny.

Existing-Home Sales

Nationally, total existing home sales, fell in July, 3.2 percent to 5.39 million in July from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6 percent) a year ago (5.48 million).
Lawrence Yun, NAR chief economist, says existing sales fell off track in July after steadily climbing the last four months. “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” he said. “Realtors® are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.”
According to Freddie Mac, the for a 30-year, conventional, fixed-rate mortgage dropped from 3.57 percent in June to 3.44 percent in July. Mortgage rates have now fallen five straight months and in July were the lowest since January 2013 (3.41 percent).
The median existing-home price for all housing types in July was up 5.3 percent from July 2015 . July’s price increase marks the 53rd consecutive month of year-over-year gains.

Maine’s July home sales were down slightly with 4110 ‘solds’ with a median sale price of $191,000 with a total ‘sold volume’ of $956 million.
“Although home sales are still expected to finish the year at their strongest pace since the downturn, thanks to a very strong spring, the housing market is undershooting its full potential because of inadequate existing inventory combined with new home construction failing to catch up with underlying demand,” adds Yun. “As a result, sales in all regions are now flat or below a year ago.”