Freddie Predicts Slower Home Sales Growth Amid Affordability Challenges

Written By: Joel Palmer, Op-Ed Writer

Freddie Mac is the latest entity to forecast a continued slowdown in the housing market, meaning potentially less volume in the near future for mortgage processors and underwriters.

Despite a number of positive economic indicators that should lead to a robust housing market, the current market conditions will continue in the fourth quarter of 2018 and into 2019.

Freddie noted that the U.S. economy experience real GDP growth of 4.1 percent in the second quarter of 2018, the strongest quarterly growth in nearly four years. In addition, the unemployment rate has dropped below 4 percent. and the labor market has added jobs for 94 consecutive months through July, the longest such streak recorded by the U.S. Bureau of Labor Statistics (BLS). 

“This growth occurred despite weaker housing market activity. Housing starts, existing-home sales and new home sales all declined in the second quarter, and home price growth moderated. Does recent housing data indicate the start of a slowdown, or is it just a temporary blip? We forecast the housing market to post modest growth in the second half of this year, as well as next year. The healthy economy and robust labor market should support homebuyer demand,” read a summary of Freddie Mac’s Economic & Housing Research Forecast for August.

According to the forecast:

•    New and existing home sales fell 1.6 percent in the second quarter. Housing starts also stalled, falling 4.5 percent for the quarter.

•    New and existing home sales are now forecasted to increase only modestly this year to 6.14 million and rise to 6.36 million next year. Home prices are expected to moderate, but still at a pace well above inflation.

•    Slower home sales growth, as well as decreased refinance activity due to higher mortgage rates, are expected to cause single-family mortgage originations to slide around 8 percent this year to $1.66 trillion. Freddie projects that growth in home sales and house prices will push originations 2.1 percent higher in 2019 to $1.69 trillion.

•    Freddie predicts 30-year fixed mortgage rates will average 4.8 percent for the fourth quarter. That would be up slightly from the 4.6 percent average so far in 2018. The rate is expected to jump to an average of 5.1 percent in 2019.  

“The good news is that the economy and labor market are very healthy right now, and mortgage rates, after surging earlier this year, have stabilized in recent months,” said Freddie Mac Chief Economist Sam Khater. “These factors should continue to create solid buyer demand, and ultimately an uptick in sales, in most parts of the country in the months ahead.”

Freddie’s forecast is in line with recent projections from fellow GSE Fannie Mae as well as the National Association of Realtors. 

In its latest economic forecast, Fannie Mae lowered its 2018 projections for both purchase and refinance originations. Citing a “general weakening of housing conditions in the second quarter,” Fannie economists now predict that overall originations will fall 9 percent this year compared with 2017. That includes a 28 percent drop in refinances with only a 2 percent increase in purchase mortgages. 

The National Association of Realtors recently released its Pending Home Sales Index for July. It showed that pending sales have fallen on an annual basis for seven straight months. 

“It’s evident in recent months that many of the most overheated real estate markets – especially those out West – are starting to see a slight decline in home sales and slower price growth,” said Lawrence Yun, NAR chief economist.

He added: “The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”

About the Author

As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

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