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Homebuyers Get Hyper-Cautious About Mortgage Rates

The housing market is seeing some stability after getting a late boost towards the end of 2018 from lower mortgage rates and slowing home price growth, according to Freddie Mac's January Forecast. Mortgage rates especially remain a focus for homebuyers.

According to the Freddie Mac forecast, 30-year fixed-rate mortgages began to let up at the end of the year, after climbing for several months, averaging 4.6 percent in 2018 and dropping to a nine-month low of 4.45 percent in early January.

“Despite the weakening of the housing market in 2018, early 2019 data signals a possible turnaround for the year to come,” said Sam Khater, Chief Economist, Freddie Mac. “This recent uptick in activity proves that homebuyers are very sensitive to changing interest rates and will likely respond positively if mortgage rates remain below five percent.”

While rates saw a slight uptick towards the end of January, ending the month at 4.46 percent, Freddie Mac expects them to average below the 5 percent mark at 4.7 percent in 2019 before increasing to 4.9 percent in 2020.

Though home sales have seen a sluggish start to the year, Freddie Mac projected them to regain momentum increasing to 6.09 million in 2019 and 6.14 million by 2020. The report indicated that the surge would mostly come from growth in existing home sales while "new home sales are expected to remain almost flat," in 2019.

Another factor that is likely to give homebuyers a reason to smile, according to Freddie Mac, is home prices. The report indicated that after increasing for years, home prices have finally begun to cool with the rate of growth slowing down. It projects home prices to increase by 4.1 percent and 2.7 percent in 2019 and 2020 respectively.

Looking at the immediate spring buying season, Khater said that softening house price appreciation along with the increasing inventory of homes on the market and historically low mortgage rates "should give a boost to the spring homebuying season."

In terms of mortgage loans, the forecast said that single-family loan origination was expected to increase 2.1 percent to $1.68 trillion in 2019 with the volume remaining steady at this number in 2020.  It also revised its projections for the refinance share of originations upward to 27 percent in 2019 and 24 percent in 2020 due to the easing of mortgage rates at the end of 2018.

About Author: Radhika Ojha

Radhika Ojha is an independent writer and editor. A former Online Editor and currently a reporter for MReport, she is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Houston, Texas.
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