Low mortgage rates and a rise in inventory compared to Spring 2018 are likely to boost home sales this buying season according to Freddie Mac's March Forecast.
The report forecasted mortgage rates to remain in the 4.5 percent range during 2019 before rising again to around 4.8 percent in 2020. It also projected an increase in housing starts due to "the recent increase in building permits." The report indicated that housing starts would rise over the next two years with most of the growth coming from single-family housing starts. Total housing starts are expected to increase to 1.27 million units in 2019 and to 1.33 million units in 2020, according to Freddie Mac.
The fall in mortgage rates is also likely to positively impact home sales this year, with Freddie Mac projecting existing home sales to not only bounce back but also trend higher for the rest of the year.
"The real estate market is thawing in response to the sustained decline in mortgage rates and a rebound in consumer confidence–two of the most important drivers of home sales," said Sam Khater, Chief Economist, Freddie Mac. "Rising sales demand coupled with more inventory than previous spring seasons suggests that the housing market is in the early stages of regaining momentum."
The report projected total home sales (new and existing) to reach 5.94 million in 2019 before increasing to 6.14 million in 2020.
As a result of increased sales, single-family mortgage originations are also expected to rise 1.6 percent to $1.67 trillion in 2019 and remain at that level through 2020, according to Freddie Mac. However, it has lowered its home price growth forecast to 3.5 percent and 2.5 percent in 2019 and 2020 respectively.
Looking at the broader economy, Freddie Mac said that it had lowered its GDP growth forecast for the first quarter to 1.2 percent due to "the decline in residential fixed investment and consumer spending, as well as the effects of the government shutdown in January." Even though it forecast the overall GDP to gain strength starting with the second quarter, the report projected overall GDP growth to decelerate to 2 percent in 2019 and then 1.8 percent in 2020.
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