Housing isn’t going to provide as much of a boost to the economy as it did last year, Bank of America’s Michelle Meyer said Monday.
“You have a stimulus and a support to the consumer from housing wealth, but there are big lags in that process as well,” she said. “So, I think housing is a positive, but it’s not the jolt to the economy that perhaps we were all hoping for.”
Meyer, who is senior U.S. economist at Bank of America, revised her forecast for housing starts in 2014 to 1.03 million, down from a previous projection of 1.1 million.
On CNBC’s “Halftime Report,” Meyer noted that residential investment was down, contracting 5.8 percent in the first quarter, following a decline of 7.9 percent in the fourth quarter of last year. That would add maybe 0.1 percent to GDP, she added.
Three factors were making for a challenging housing market, Meyer said: affordability, credit and inventory.
“We have seen affordability come down with the spike in interest rates and the rise in home prices, so it’s making it a little bit harder for that particularly first-time home buyer to enter the market,” she said.
Credit was still tight, Meyer added, especially when compared with historical norms.
“Inventory’s been extremely low, so the market’s actually arguably tight, even in an environment where sales are weak, and that’s keeping some upward pressure on home prices,” she said.
That said, there was little risk of a housing bubble at present, Meyer added.
“I don’t think that we should worry about another housing bubble brewing, especially not like the one we have just seen,” Meyer said. “A big difference between this environment and what we had been coming off of is that you don’t have the same interaction of credit. You don’t have leverage like we had in the last cycle.”
The run-up in home prices has been fueled by all-cash buyers and appears in select markets , she added.
“So, I would agree that in certain areas we’re seeing prices overvalued, but I do think that we’re far from a bubble akin to this last cycle,” Meyer said.
Senior Director, Coldwell Banker New Homes Division
With over 200 condominium, townhome and loft projects successfully marketed
“Fewer properties for sale with such remarkably low interest rates make it a great time to sell but a more difficult time to buy”