February 2014

TheMReport — News and strategies for the evolving mortgage marketplace.

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Th e M Rep o RT | 41 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ORIGINATION the latest U.s. improvement to Outpace global growth The nation's economy is slated to grow 2.6 percent, according to IhS. m any wonder what 2014 will bring for economic growth, what plans the Federal Reserve has for its stimulus, and how employment and the housing market will take shape. IHS recently released its 2014 outlook, addressing these and other factors affecting the U.S. and global economies in the coming months. Global economic growth will jump to 3.3 percent this year from last year's figure of 2.5 percent, with the U.S. economy growing 2.6 percent, up from 1.7 percent in 2013, according to IHS chief economist Nariman Behravesh and IHS chief U.S. economist Doug Handler. Europe's recovery "will proceed, but at a very sluggish pace," with growth reaching 0.8 percent, up from -0.4 percent in 2013. The U.S. economy will benefit from increased consumer spending, declining fiscal headwinds from the government sequester and budget debate, a strong oil and gas sector, and continued strengthening in the housing market, according to the economists. Consumer spending will ramp up from 1.7 percent to 2.6 percent, according to IHS. Job growth will take place in the oil and gas sector and contribute to manufacturing in the United States. Unemployment numbers will continue to improve, at least on the outside, according to IHS. The unemployment rate among advanced economies will decrease slightly from 8.1 percent to 7.9 percent, with eurozone unemployment hovering near its record high of 12.2 percent. However, the unemployment rate at home will continue falling, likely reaching 6.5 percent this year and 5.2 percent by 2017. While the Federal Reserve's stated threshold for tapering off its stimulus is 6.5 percent unemployment, Handler suggests a range of other factors will also impact the Fed's decision. He also notes some of the perceived improvement in unemployment is due to individuals dropping out of the labor force rather than finding employment. Handler says the Fed will take this factor into consideration when deriving its path forward. While expecting "some days of volatility" in the stock and bond markets as the Fed begins tapering its spending, Handler suggests the overall impact will not be drastic. The dollar will gain strength as the Fed tapers its stimulus while other central banks con- tinue theirs, according to IHS. As for the housing sector, IHS economists expect housing will continue to contribute positively to economic recovery in the U.S., though it will continue to pale compared to pre-recession activity. Household formation, which has been sluggish, will increase, reaching 1.5 million for the year, according to IHS' predictions. Housing starts will linger below 1.5 million but will likely rise to this level in 2015. Forecast: new year to Bring mixed trends projects sunny skies for housing with a few clouds on the horizon. W hile maintaining that "local markets vary widely," released a few predictions for the national housing market in the new year. The forecast includes a few bright spots, a couple of looming clouds, and some normalcy expected to precipitate in the market during the coming year. Among the bright spots are the rising tide of positive equity and abating foreclosures. While 2.5 million homeowners rose from under water during the second half of 2013, 7.1 mil- lion homeowners remain below water. Furthermore, 10 million homeowners have less than 20 percent equity in their homes, according to However, "[t]he good news is that prices are expected to continue rising in 2014, which will lift more homeowners into positive terri- tory," according to A second positive trend that will continue into 2014 is declin- ing foreclosures. In the third quarter of 2013, foreclosure starts reached their lowest level since the second quarter of 2006. September also marked the 36th straight month of declining foreclosure activity on an annual basis, according to, and this movement is expected to continue in 2014. This year will bring a couple clouds to the market, including rising mortgage rates and declin- ing affordability. Mortgage rates rose 100 basis points last year, and when the Federal Reserve begins tapering its stimulus spending, rates are likely to spike a little higher. Rising prices may help bring some homeowners out of a nega- tive equity position, but they also pose a threat to affordability. The rate of price appreciation last year outpaced income growth. Rising mortgage rates also lead to lower affordability. Another change to the market in 2014 will likely be a rise in inventory, bringing it more in line with normal levels. "The beginning of 2013 could be characterized as the 'year of low inventory,'" according to At year's end, inventory matched levels seen in 2012, but the median age of inventory was 11 percent lower.

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