Freddie Mac: Expect Interest Rates, Housing Prices To Continue To Rise

Government-sponsored enterprise (GSE) Freddie Mac's Housing Market Outlook report for June shows that U.S. house prices increased an average of 5% on a seasonally adjusted basis for the first half of 2013, with most of that increase coming in the weeks following the Federal Reserve's June 19 announcement that it may start tapering its bond-buying program in the fourth quarter, which sent ripples through the market.

The GSE, however, predicts that the rapid incline in house prices will moderate in the second half. The firm forecasts that housing prices will increase 3% to 4% over the next six months, reaching a total increase of 8% to 9% by the end of this year, compared to the end of 2012.

In the five-month period from January to May, home sales were on their best first-half-year pace since 2007, Freddie Mac reports. Existing home sales were up more than 10% compared with the first five months of 2012. What's more, new home sales were up 29%.

The firm predicts that new home sales will rise about 2% for the remainder of the year. Further, it forecasts that housing starts will increase by about 12% compared to the first half.

The rental market has also improved, the report finds. In the first quarter of 2013, about 65% of newly completed apartments were rented, up substantially from 2009. Multifamily housing starts are expected to reach 300,000 by the end of the year, about the same as the average pace seen in 2006.

The report also takes into consideration the jobs market, which is closely tied to the housing market. The labor market added 1.2 million new jobs through June, including about 100,000 new construction jobs, marking the best first half since 2005. The firm predicts that this pace will continue through the second half.

Meanwhile, interest rates continue to climb, with the average 30-year fixed rate up a full percentage point since mid-May. Freddie Mac anticipates that rates will continue to rise gradually through the remainder of the year, reaching 4.6% to 4.7%.

‘The housing recovery keeps chugging along despite the recent market hysterics around 'Taper Talk' which caused mortgage rates to jump over the past month,’ said Frank Nothaft, Freddie Mac's vice president and chief economist. ‘We won't know the immediate impact on the pop in mortgage rates for another couple months. However, we don't expect them to stall the housing recovery because demand is strong, supply is limited and housing affordability remains strong in most markets for most families.’


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