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Spring Activity Cools But Housing Shows Improvement

Housing activity indicated a promising start for the first quarter of 2012 that substantially outpaced performance during the same period last year. However, the monthly pattern suggests some loss of momentum late in the quarter. According to Fannie Mae's Economic & Strategic Research Group, a slowdown in momentum may be mirroring many economic indicators and may partly be the result of unusually warm weather at the start of the year that pulled some activity forward.

"Despite the loss of momentum as we move through the spring months, we expect that home sales will rise slightly more than 7 percent during 2012," said Fannie Mae Chief Economist Doug Duncan. "Our outlook is bolstered by improvements in consumer sentiment seen in our National Housing Survey results, which show that consumer views of housing market conditions have become more supportive of home purchases and their outlook on home prices. Interestingly, we're seeing a pick up from depressed levels in the 'good time to sell' category, suggesting rising optimism about the housing market."

Economic growth slowed in the first quarter of 2012 to 2.2 percent at an annualized rate, down from 3.0 percent in the fourth quarter of 2011. While still modest, the recent pace of growth is stronger than the same time last year and accompanied by a better balance of upside and downside risks compared to a year ago. Consumer spending was the primary driver of growth, posting the best showing since the end of 2010. However, while the strength in consumer spending is encouraging, it will likely be unsustainable going into the current quarter due to the lack of income support. Overall, incoming data suggest that growth will continue to be sluggish in the current quarter, and the pace of activity should firm just slightly in the second half of the year. For all of 2012, Fannie Mae expects growth to come in at 2.3 percent—little changed from the view we have held since the beginning of the year.