trainFreddie Mac recently released its U.S. Economic and Housing Market Outlook for October showing that the federal government shutdown, debt ceiling issues and the slowing economy including the severely depressed level of new home construction are slowing the housing recovery heading into the fourth quarter of the year.

“The housing recovery keeps chugging along despite a constant barrage of disruptions to the broader economy,” says Frank Nothaft, Freddie Mac vice president and chief economist. “We’re likely going to see the housing recovery slow down, but not shut down, as we close out the rest of this year due to tight inventories in many markets, rising mortgage rates and slumping consumer confidence. Fortunately, the housing recovery should continue to absorb the economic shocks in stride and improve next year.”

Outlook Highlights

  • By the end of the year, expect mortgage rates to be around the 4.3 percent level, and head higher in 2014.
  • Due to the government shutdown, we’ve revised down fourth quarter growth projections by 0.5 percent.
  • Inventories remain tight at a 5 months’ supply as of September due to negative equity, a declining supply of distressed sales, and a severely depressed level of new construction.
  • Expect the U.S. economy to add less than 1 million housing units in 2013 and around 1.15 million in 2014, significantly below normal levels.
  • Construction employment is 1 to 2 million jobs below trend levels, which is roughly 1 year of non-farm payroll growth at current levels.
  • Expect the ramping up of residential construction to take a while, and while economic growth will improve over the next year, the economy won’t be operating at full potential until sometime after 2015.

For more information visit: www.freddiemac.com

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