Freddie, Fannie Expect Stable Housing Market for Rest of 2019

Written By: Joel Palmer, Op-Ed Writer

Fannie Mae has lowered its forecast for home sales in the first half of 2019, while Freddie Mac expects modest growth in 2019 due to lower mortgage rates.

In its March Outlook, the Fannie Mae Economic and Strategic Research (ESR) Group wrote that it expects the market to rebound in the second half of the year. While housing affordability remains a challenge, demand will remain favorable due to a solid labor market and strong household formation.

“We continue to expect another year of steady home sales in 2019,” said Fannie Mae Chief Economist Doug Duncan. “While inventory has improved, it remains low by historical standards – particularly among existing homes – and threatens to derail the spring homebuying season, though a recent jump in single-family starts suggests that new supply is on the way. Considering the general inventory shortage and strong demand for housing, affordability remains a key challenge facing the industry, particularly in the conforming space.”

Freddie Mac predicted total homes sales of 5.94 million in 2019 and 6.14 million in 2020. Growth is being driven by mortgage rates that have fallen significantly since the fall. In its latest mortgage rate survey, Freddie reported an average 30-year fixed rate of 4.28 percent, down from 4.45 percent the year before. Fifteen year rates are down year over year as well, from 3.91 percent to a current average of 3.71 percent.

“The real estate market is thawing in response to the sustained decline in mortgage rates and rebound in consumer confidence – two of the most important drivers of home sales,” said Sam Khater, Freddie Mac’s chief economist. “Rising sales demand coupled with more inventory than previous spring seasons suggests that the housing market is in the early stages of regaining momentum.”

The Fannie Mae March Outlook noted that annualized existing home sales fell 8.5 percent in January to their lowest level since November 2015. New home sales declined 2.4 percent from year ago levels in December.

Also in decline are purchase applications, which fell 10.3 percent between January and February. This, according to the report, suggests more modest growth in home sales at the beginning of the year than anticipated during the February Outlook report.

The supply of existing homes remains low. In January, there was just shy of four months supply of existing homes on the market. Though that amounted to an increase from previous months, it is below six-month level consistent with a balanced market.

The supply of new homes remains strong, and a 25 percent increase in single-family starts in January suggests that additional supply could arrive in the coming months, the outlook stated.

Fannie lowered its home sales forecast for the year. As such, it also adjusted its forecast for purchase mortgages. Fannie now projects an increase of 2.7 percent in purchase mortgages for the year, compared with its previous forecast of 3 percent growth. Freddie is projecting a 1.6 percent rise in originations.

Fannie’s forecast for refinance originations was also lowered due to a higher projected increase in mortgage rates. Refinance activity is now expected to shrink 8.6 percent in 2019, compared with a previously projected 6.5 percent decline.

Freddie Mac lowered its home price growth forecast to annual increases of 3.5 percent and 2.5 percent in 2019 and 2020, respectively.

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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