Economists Revise Housing Forecasts

Fannie Mae & Freddie Mac  |   May 22, 2015

Economic growth is expected to moderate for the rest of the year, but housing is one sector that is expected to post solid gains, according to Fannie Mae's newly released report from its Economic & Strategic Research Group.

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Economists with mortgage giant Freddie Mac also released a report this week revising housing forecasts upward for the remainder of the year. Economists expect that with tight for-sale inventories home prices will rise 4.5 percent this year, revised up from 4 percent in a prior report.

"The labor market has added 5 million additional jobs, the unemployment rate is significantly lower, and housing markets are generally in much better condition than two years ago," says Len Kiefer, deputy chief economist at Freddie Mac.

Fannie Mae economists note that mortgage applications for home purchases –a gauge of home sales -- have moved up consistently for the past couple of months.

"While refinance applications have recently pulled back, the actual volume of both purchase and refinance originations earlier in the year came in stronger than we had projected," says Doug Duncan, Fannie Mae's chief economist. As such, Fannie Mae economists have raised their mortgage origination forecast to $1.46 trillion for this year.

"We are seeing positive developments in the housing space, supporting our forecast of moderate but broad-based improvement in 2015 compared to last year," Duncan says.

The wild card for the market may be what happens with mortgage rates in the next few months. Low mortgage rates have helped to keep homebuyer affordability high in the first quarter of this year, but housing markets will likely see an increase in interest rates for the remainder of year, Freddie Mac economists note.

"For the remainder of this year, we're likely to continue to see these mortgage rate swings as market participants try to anticipate Fed timing around rising short term interest rates," says Kiefer. "Unfortunately, perspective home buyers may experience bouts of affordability shock in many housing markets. So far it's been low mortgage rates that have helped to keep homebuyer affordability strong in the face of rising house prices, while income growth remains stagnant."

Source: Fannie Mae & Freddie Mac