The U.S. economy is poised for growth, and the housing market is set to lead the way, according to a new report by Pacific Investment Management Co. (PIMCO). In PIMCO’s quarterly economic outlook, portfolio manager Saumil Parikh said early signs of improvement in the housing market are expected to lead a full economic recovery over the next three to five years.
Coupled with the nascent improvement of the housing market, the shift towards domestic energy supply could boost the country’s economic growth by half a percentage point beyond its current 2 percent annual rate, said Parikh.
“However, the U.S. economy still faces significant headwinds from over-indebtedness, large imbalances, growing inequality and policy incrementalism – and these headwinds could hinder employment growth,” Parikh cautioned.
The International Monetary Fund (IMF) forecasts the U.S. economy to grow 2 percent in 2012, and 2.3 percent in the following year. IMF also warned that the economy could fall into recession, should the White House and Congress fall off the “fiscal cliff,” a package of spending cuts and tax increases scheduled to take effect if the two political bodies can’t reach a budget agreement by the end of the year.
The unemployment rate may fall to 8.2 percent this year and 7.9 percent the following year, according to IMF estimates. Continued job growth combined with a healing housing market may not be a panacea, but it will certainly bolster the economy, making it easier for Americans to purchase and afford homes.
Contracts to purchase homes and building permits to construct new homes continue to rise, exceeding economists' expectations. In May, more Americans filed documents to purchase previously owned homes than expected. Pending home resales, an index for the overall health of the housing market, surged 5.9 percent, reaching a two-year high. According to the National Association of Realtors (NAR), a sale is considered pending when the contract is signed but the transaction has not closed.
A Sustainable Recovery
Looking beyond just the monthly gains, Lawrence Yun, chief economist for the NAR, said the increase in pending home resales in May marks the thirteenth consecutive month of gains. “This implies that the recovery is a sustainable recovery. The overall trend is an increase and buyers are coming back to the market,” Yun said.
The prediction for 2012 is that sales of existing homes will increase between 9 and 10 percent, according to Yun. Regionally, the pending home sales index increased most in the West, jumping 14.5 percent in May. The Northeast index rose 4.8 percent, while the South increased just 1.1 percent. The Midwest index grew by 6.3 percent. In each of these regions, sales have increased dramatically since this time last year.
Values of homes are expected to rise through 2013 as inventory shrinks and demand for homes increases. For homebuyers, the current market is extremely favorable, with record-low mortgage rates and low home prices.
Housing Boom Expected to Lead Economic Recovery