Inventory shortage, rising prices will mute purchases: Freddie Mac
While the government-sponsored enterprise raised its volume projections to $1.8 trillion from $1.77 trillion in June, the change came from an increase in refinance expectations to $607 million from $584 million one month ago. But the purchase forecast was virtually unchanged at $1.19 trillion.
This trend is likely to continue.
"We expect to see stronger housing starts and increased home sales for the remainder of the year as homebuyers benefit from very attractive mortgage rates, lower prices at the gas pump, plus a gradual bump up in wages," said Freddie Mac Chief Economist Sam Khater in a press release. "While this affordability boost is welcomed, rising demand in the face of limited homes for-sale is likely to put even more upward pressure on house prices."
The average for the 30-year fixed-rate mortgage is now projected to be 3.9% for the remaining two quarters of the year, compared with Khater's June forecast of 4%. For the first half of next year, he predicted rates will remain at current levels before rising to 4.1% by the end of 2020.
"We expect that low mortgage rates, along with a thriving labor market, will help sustain the housing market for at least the next year and a half," Khater said in Freddie's outlook report.
Freddie Mac's 2020 origination projection was unchanged at $1.72 trillion.
Housing starts, after bottoming out at 1.19 million seasonally adjusted annualized units in the fourth quarter, increased quarter-to-quarter in the first half of this year; that trend is expected to continue through the end of 2020, with 1.36 million starts projected for the fourth quarter of that year.
Home sales will grow quarter-to-quarter on a seasonally adjusted annualized rate through the second quarter of 2020 before plateauing starting in the third quarter of next year. The projected run-rate for 2019 is 6 million seasonally adjusted annualized units, up from 5.6 million last year. Next year's run rate is projected to be 6.12 seasonally adjusted annualized units.
Gross domestic product growth is now forecast at 1.8% for the third quarter, down from a 2.1% projection in June; but there were no changes to Khater's GDP outlook for the next five quarters. On an annual basis, Khater now forecasts 2.1% GDP growth for 2019, down from 2.2% in June. The 1.8% forecast for 2020 is unchanged. Fannie Mae's most recent GDP forecast is 2.1% for this year and 1.5% for next year.
Khater's forecast also examined the likely path and broad impact of short-term rates.
"Owing to possible interest rate cuts in the second half of 2019, we expect the federal funds effective rate to be 2.3% in the third and fourth quarter of 2019," Khater said. "While our 2019 annual forecast for the federal funds rate remains unchanged from our previous forecast at 2.4%, we expect the annual average for 2020 to be 2.3%, which assumes no further rate cuts in 2020.
"The lower federal funds rate will turn investor interest toward more lucrative stocks and away from government bonds. We forecast the 10-year Treasury rate to decline to 2.3% in 2019 and stay at the same level in 2020. Also, maintaining the spread between government bond yields, we expect the one-year Treasury rate to be 2.2% in both 2019 and 2020."