There is an opportunity for home sales to break out of the doldrums if price appreciation slows, mortgage rates remain flat and supply increases, Freddie Mac said.
Its latest forecast projects $1.69 trillion of mortgage originations in both 2018 and 2019, down from a revised $1.82 trillion of total volume in 2017.
"Home sales have mostly moved sideways for much of the year, but given the sizeable demand for buying in most markets, there's hope for a small breakout in the months ahead," said Freddie Mac Chief Economist Sam Khater in a press release. "Mortgage rates have stabilized in recent months, and in some high-cost markets, price appreciation is showing some signs of easing. If new and existing housing supply can increase meaningfully, sales will follow."
Fannie Mae previously modified its forecast for 2018 to $1.69 trillion, down from $1.71 trillion on lower-than-expected existing-home sales.
While consumer demand to purchase a home increased this spring, aided by a strong economy and job market, it did not create a boost in sales activity because listings were scant, home price growth remained swift and higher mortgage rates squeezed the budget of many would-be buyers, Khater said.
That was borne out by the month-to-month decline in June's existing-home sales, which were released after the forecast was made.
"June's decrease in existing-home sales continues this year's trend of coming in below expectations," Khater said in a separate statement. "Mortgage rates barely moved in the month of June, which should have given some relief to prospective homebuyers."
But referring back to the lack of inventory and rising prices, "this ongoing issue will likely lead to more affordability headwinds for those trying to buy a home in the months ahead," he said.
Heading into late summer, Freddie Mac expects market conditions to slightly improve, with added new-home construction helping to alleviate some of the current supply shortage.
Freddie Mac predicted 2018 total home sales (new and existing) of 6.27 million, an increase of 2.5% over 2017. However, this was down from its June projection of 6.29 million units sold.
Home prices are expected to grow 6.7% this year. In June, it expected 6.6% growth.
Its projections for 2019 of 6.44 million in home sales and 4.8% price growth were unchanged from June.
The revision in its mortgage volume forecasts is a result of a methodology change at Freddie Mac, which removed second liens and home improvement loans from the calculations. The switch to including only first-lien residential mortgages in the estimate is in line with the methodology used by the Mortgage Bankers Association and Fannie Mae.
The revised origination volume forecast for this year was practically unchanged from June's once the second lien and home improvement loan data was removed.
Freddie Mac estimated that 29% of this year's volume and 24% of next year's volume would be refinancings, unchanged from its June forecast.