Given improvements seen in housing, Fannie Mae revised its housing forecast higher for 2012 and 2013 in its November economic outlook report.
According to the GSE, the fundamentals are set in place for a â€œsolidâ€ housing recovery, such as low interest rates, rising prices, and a labor market thatâ€™s healing.
Considering these developments in housing, the GSEâ€™s Economic & Strategic Research Group anticipates single-family housing starts will jump 25 percent this year, then rise by another 22 percent in 2013.
Existing-home sales should also rise and see a 9 percent increase in 2012 and a 4 percent gain in 2013.
When combining new and existing-home sales, the increase is expected to be 10 percent this year and an additional 6 percent in 2013. And if thereâ€™s any risk in this forecast, Fannie Mae says itâ€™s that housing demand may actually result in stronger housing activity than currently anticipated.
Based on the Federal Housing Finance Agencyâ€™s purchase-only index, home prices should see an increase of 2.9 percent for the remainder of 2012 and a 1.6 percent increase in 2013.
Fannie Mae was also optimistic about originations and expects originations to reach $1.81 trillion in 2012 and $1.54 trillion in 2013. The refinance share of originations should rise to 71 percent in 2012 before dropping to 62 percent in 2013, according to the report.
The 30-year fixed-rate mortgage is expected to stay low and average 3.5 percent in 2013.
The GSE also expects the Federal Reserve to continue buying $40 billion in mortgage-backed securities (MBS) each month through 2013.
Unemployment is expected to dip further into 2013 and fall to 7.6 percent. GDP is expected to grow at a rate of 2.2 percent in 2013.
Even though reports on the housing sector give reasons to be optimistic, Fannie Mae still warned â€œdata continue to show a sluggish recovery overall.â€
The GSE also noted consumer spending was the largest contributor of growth in Q3. However, consumer confidence may be weakened in coming months due to the the fiscal cliff and debt ceiling debate, which â€œare likely to create the most significant barriers to meaningful growth,â€ Fannie Mae stated.
In addition, Fannie Mae Chief Economist Doug Duncan cautioned, â€œWhile the pick-up of activity in the third quarter is encouraging, it is compared to the weak pace seen in the second quarter and doesnâ€™t portend a robust recovery in the near term.â€