Mortgage giants Fannie Mae and Freddie Mac have lowered their forecasts for home sales this year, citing low inventory and the affordability crunch that shortage of homes has spurred.
After relatively weak home sales in the first two months of the year, Freddie and Fannie now predict there will be 5.5 million sales in 2014, flat from last year.
In a statement, Frank Nothaft, Freddie Mac’s vice president and chief economist, said the spring home buying season had started with “mixed signals.”
“Tight inventory may pose a significant challenge for homebuyers in many markets across the country, which may result in higher home prices and sales being lower than expected,” he said.
“This is good news for those markets that have room to run on the house price appreciation front, but it’s also going to increase the affordability pinch in many markets, especially along the country’s east and west coasts. Two indicators that are supporting local housing activity are rising consumer confidence and declining unemployment rates.”
While severe winter weather could account for some of the weakness earlier this year, a sharp decline in housing affordability is also to blame, according to Fannie Mae. For instance, existing-home sales in February were down about 7 percent from a year ago, but the decline was due to sales of lower-priced homes costing $250,000 or less — higher-priced homes rose across the board.
This suggests “that declining affordability conditions and lean inventory of bargain-priced homes — consistent with a shrinking pipeline of foreclosure properties — contributed largely to the dismal performance of existing-home sales,” Fannie Mae said.
Inventory rose to its highest level in nearly a year in February, to a 5.2 months’ supply, but that is still low by historical standards and has helped boost home prices despite sluggish demand, Fannie Mae added.
Nonetheless, Fannie Mae Chief Economist Doug Duncan said the recent loss of momentum in the housing market is likely to be temporary.
“Overall, we expect housing to add 0.3 percentage points to economic growth this year. While existing-home sales have remained essentially flat, we continue to believe that new-home sales will increase at a double-digit pace,” he said in a statement.
“Housing starts are expected to rise to about 1.05 million units in 2014, up from 925,000 in 2013 but approximately 50,000 fewer than we expected at the beginning of the year due to builders’ credit and labor constraints.”