Muted Fed hikes should stabilize housing market in 2019: Fannie Mae

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Slower growth to interest rates and home prices will boost housing affordability in 2019, according to Fannie Mae.

The average 30-year fixed-rate mortgage is expected to remain at 4.5% through 2019 and 2020, according to the January housing forecast. December's projection had rates at 4.8% for the next two years.

After an unpredictable 2018, stability within the rate environment coupled with relaxed home value increases will aid buyer confidence.

"The Fed's continued efforts to unwind expansionary monetary policies implemented during the recession have the potential to add to the headwinds facing the economy," Doug Duncan, chief economist at Fannie Mae, said in a press release. "However, we believe that contained price pressures should afford the Fed sufficient latitude to slow or pause rate hikes this year. This will allow the economy to continue growing, albeit at a slower pace, and housing to regain its footing."

The government-sponsored enterprise projects just under $1.63 trillion in mortgage origination volume for 2018 and $1.61 trillion for 2019 before jumping to $1.66 trillion in 2020. The 2019 purchase total is forecast at $1.19 trillion while the refinance volume sits at $423 billion, a share of 26%. Next year's purchase volume is expected to hit $1.25 trillion with the refinance total falling to $411 billion, or a 25% share.

"Economic growth in 2018 will likely turn out to be the strongest of the current expansion, and inflation remained anchored even as the unemployment rate dipped to multidecade lows," said Duncan. "However, home sales experienced a setback, partly attributable to the most aggressive pace of monetary tightening of the expansion."

U.S. economic growth is anticipated to slip to 2.2% in the upcoming year and 1.6% in 2020 after finishing 2018 at an estimated pace of 3.1%.

"This year, the expansion is likely to become the longest on record, but the path to continued growth faces a number of downside risks with fewer upside risks. With fading impacts of fiscal policy and tight financial conditions around the globe, we're seeing moderating economic growth in the next couple of years," said Duncan.

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Housing market Mortgage rates forecast Housing affordability Refinance Purchase Fannie Mae Federal Reserve