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The Changing Fortunes of Home Sales

tariffThe housing market is likely to see healthy growth this spring according to reports by Fannie Mae and Freddie Mac. Home sales are also expected to surge during this time, the reports noted.

According to Fannie Mae's Economic and Strategic Research Group's (ESR's) May outlook, leading indicators for housing continued to suggest a "solid spring homebuying season," with the ESR revising its forecast for the second quarter and the rest of the year upwards for housing.

Echoing this sentiment, Freddie Mac kept its positive outlook on the housing industry unchanged in its May forecast citing "positive impact of low mortgage rates, a strong labor market, low unemployment, and modest wage growth," as some of the leading factors that would leave a positive impact on the market.

Fannie Mae also predicted zero rate hikes this year. "As the Fed continues to preach patience and inflation remains well below target levels, we revised our forecast in May to reflect our expectation of zero rate hikes in 2019 and 2020," said Doug Duncan, Chief Economist at Fannie Mae.

While the ESR's outlook on the U.S. economy, on the whole, remained roughly unchanged, it pointed out to the current U.S.-China trade tensions and elevated corporate debt acting as headwinds as the year progressed.

"On the heels of a strong first quarter, we upgraded our full-year 2019 forecast of real GDP growth by one-tenth to 2.3%," Duncan said. "Prior quarter upticks in net exports and inventories may have fueled the growth, but a deeper dive into the underlying data of each suggests weakness."

Looking at housing market trends, Freddie Mac projected mortgage rates to remain in the 4.3% range for the rest of the year and expected total home sales to surpass the 2018 levels to reach 5.98 million units this year, with most of the sales coming from existing homes.

"We still expect stronger home sales and housing starts in the coming months due to favorable market conditions and accelerating wage growth," said Sam Khater, Chief Economist, Freddie Mac.

Additionally, Duncan said that while residential fixed investment may have dragged on growth for the fifth consecutive quarter, "we remain optimistic that the spring homebuying season will be a productive one.

Even as the ESR group revised upward its 2019 purchase and refinance mortgage origination forecasts, Freddie Mac's quarterly refinance forecast that was a part of its May report found that cash-out refis had remained essentially unchanged.

"Our quarterly report on refinance activity shows that few U.S. homeowners are choosing to tap into their largest source of wealth despite having a record $16 trillion in home equity available to them," Khater said. Most homeowners remain reluctant to increase their mortgage balance, whereas we continue to see balance increases on auto loans, credit cards, and student loans."

Cash-out borrowers represented 76% of all refinance loans in the first quarter of 2019 down from 82% 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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