Things are coming together nicely for the spring home buying season, Freddie Mac’s monthly mortgage market forecast shows.
“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,” says Sam Khater, chief economist for Freddie Mac, in the report. “Rising sales demand coupled with more inventory than previous spring seasons suggests that the housing market is in the early stages of regaining momentum.”
As a result of the recent dip in mortgage rates, moderating home prices, and ongoing improvement in the labor market, Freddie Mac is now expecting new and existing home sales to reach an annual rate of 5.94 million in 2019 before increasing to 6.14 million in 2020.
As far as the job market goes, Freddie Mac notes that currently there is a growing chasm between job openings and available labor, as well as a slow increase in non-farm payroll. This indicates a tightening labor market. As such, Freddie Mac is forecasting that the unemployment rate will drop to 3.8% in 2019 before increasing to 3.9% in 2020.
The recent drop in mortgage rates is also key to improving home buyer sentiment. Currently, the company is predicting that the average rate for a 30-year fixed-rate mortgage will be 4.5% in 2019 before increasing to 4.8% in 2020.
Moderating home price appreciation is also helping to boost home sales. As a result of the slowdown, Freddie Mac has lowered its home price growth forecasts to annual increases of 3.5% and 2.5% in 2019 and 2020, respectively. This, in turn, should help improve affordability.
Lack of available inventory remains a concern. However, Freddie Mac predicts that more inventory will come online as the year progresses. Total housing starts are expected to increase to 1.27 million units in 2019 and to 1.33 million units in 2020, the company reports. Most of this growth will be in single-family housing starts.
Single-family mortgage originations are expected to increase by 1.6% to $1.67 trillion in 2019 and remain at a similar level in 2020, Freddie Mac forecasts.
Owing to the decline in residential fixed investment and consumer spending, as well as the effects of the government shutdown in January, the company has lowered its GDP growth rate forecast for the first quarter to 1.2%.
Freddie Mac forecasts GDP to regain its strength during the rest of the year but expects overall GDP growth to decelerate to 2.0% in 2019 and 1.8% in 2020.