A report from Freddie Mac echoes what many industry watchers have been saying for months: Lack of housing inventory poses a greater threat to the mortgage market than rising interest rates.
The report finds that although rising mortgage rates will shrink the refinance market, it will have little impact on purchase volume, due to pent up demand.
The report points out that lack of supply is pushing up home prices, which, in turn, is impacting affordability. At the same time, the economy is improving – there is increased job growth and wages are starting to inch up. Lack of inventory, therefore, is the main drag on home sales and mortgage volume right now.
Despite this major obstacle to growth, Freddie Mac is forecasting total (new and existing) home sales to increase 2.8% this year, to 6.29 million.
The company forecasts that home prices will rise 6.6%.
It expects total mortgage originations to fall by 6.4%, to $1.75 trillion, due mainly to the decline in refinances.
The 30-year fixed-rate mortgage rate is forecast to average 4.9% by the end of the year.
“Homeowners have come out on top as the housing market’s shining star in the first six months of the year, as rising home values continue to build their household wealth, and those who decided to sell likely found a buyer very quickly,” says Sam Khater, chief economist for Freddie Mac, in a statement. “Meanwhile, prospective buyers are active and looking in most markets, but supply is very low, competition is swift and higher mortgage rates and home prices are squeezing the budget of some prospective buyers. This market reality continues to dampen sales growth.
“For lenders, the shift is underway to focusing primarily on the purchase market because of this year’s tumble in refinancing activity,” he adds.