Freddie Mac: Lack Of Wage Growth Holding Housing Back

Posted by Patrick Barnard on October 23, 2014 No Comments
Categories : Residential Mortgage

Although the U.S. economy is improving, fears over the state of the global economy and the related impact on the financial markets, as well as the lack of wage growth here in the U.S., will likely continue to create headwinds for consumer confidence in the housing market, Freddie Mac reports.

In the firm's U.S. Economic and Housing Market Outlook for October, Freddie Mac forecasts that the U.S. unemployment rate will decline to an average of about 5.7% in 2015, as many of the 25- to 54-year-olds who had dropped out of the labor market during the past several years make their return.

Still, the U.S. won't realize substantial income growth until the GDP rate performs at a higher level.

Fixed investment has picked up, but as a share of total GDP, it is still about 2% below the levels reached prior to the Great Recession, Freddie reports. Housing's share of this investment is particularly lagging.

Another key factor is housing construction: According to Freddie Mac, housing starts need to ramp up from the current annual pace of about 1 million to about 1.7 million in order to meet demand. This, in turn, will increase inventory, which should help hold down new home prices.

Uncertainty over fiscal and monetary policy here in the U.S. will also continue to impact consumer confidence in the housing market, Freddie reports.

‘Renewed confidence and declining uncertainty are starting to unfold,’ says Frank Nothaft, chief economist and vice president for Freddie Mac, in a statement. ‘However, fears of a slowdown in Europe and a multitude of crises overseas have struck a blow to confidence in recent weeks. While the recent news on the domestic economy has been positive, we are keeping a wary eye on the economy to see if confidence falters.

‘That said, labor markets are healing, incomes are starting to rise and fixed investment is increasing, so trust and confidence should start to build throughout the economy,’ Nothaft adds. ‘But the trust and confidence won't sustain if wages don't rise as well. Combined, these forces, once firing on all cylinders, can provide the lift-off needed for economic growth to be stronger in 2015.’

To read the full report, click here.

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