After a strong second quarter, GDP growth is projected to slow to around 3% in the third quarter, a drop of 1.2%, according to Freddie Mac’s most recent economic and housing forecast.
What’s more, Freddie Mac expects GDP growth to slow to 2.4% in 2019 and to 1.8% by 2020, as the effects of expansionary fiscal policy fade.
The report shows that rising mortgage interest rates coupled with increasing home prices have discouraged home buying activity during the third quarter – a trend which Freddie Mac expects will continue.
The government-sponsored enterprise says home prices will rise by 5.4% this year, but forecasts a major slowdown in home price appreciation over the next two years, with prices rising 4.6% in 2019 and just 2.9% in 2020.
The company predicts that mortgage rates will continue to rise – albeit gradually – with the 30-year averaging 5.1% in 2019 and 5.6% in 2020. Mortgage rates remained steady at 4.6% percent for the third quarter and will average 4.5% in 2018.
Although rising rates and rising home prices will continue to erode affordability, existing-home sales are expected increase based on demand. Freddie Mac forecasts that total home sales (new and existing) will reach an annual rate of 6.07 million in 2018 and will increase 1.8% to a rate of 6.18 million in 2019 and will increase 1.1% to 6.25 million in 2020.
“The housing market continued to cool off in the fall with slowdowns in home sales, new construction and price growth,” says Sam Khater, chief economist for Freddie Mac. “While we expect the weakness in housing activity to extend the next few months as the market absorbs the recent uptick in mortgage rates, the combination of strong economic growth and millennials moving toward homeownership should help home sales regain momentum and rise modestly in 2019.”
Total mortgage origination volume is expected to reach $1.649 trillion in 2018 and increase slightly to $1.65 trillion in 2019, then fall to $1.6 trillion in 2020, according to Freddie Mac’s latest estimates.