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Report: Falling Mortgage Rates Impacting Housing Market

Freddie Mac’s latest housing market forecast [1] reveals the combination of record-low mortgage rates and the anticipation of the Fed’s decreasing interest rates has caused a spike in purchase and refinance mortgage applications.

The GSE added that it expects record-low mortgage rates and a “thriving labor market” to sustain the housing market for the next 18 months.  The average mortgage rate has been below 4% since May. 

“The lasting impact of trade tensions will have some visible impact on second and third quarter GDP growth in 2019,” Freddie Mac stated. “Without the short-term effects of tax cuts and fiscal stimulus we experienced in 2018, we forecast growth of 2.1% for full year 2019, decelerating to 1.8% in 2020.”

Freddie Mac also said it expects consumer prices to rise 2.4% in Q3 2019, despite gas and fuel prices declining and slow wage growth. The consumer price growth forecast remained unchanged at 2.1% for 2019, but will dip to 2% in 2020.

“Despite fears of economic slowdown, the U.S. labor market stands firm and continues to beat expectations,” The GSE said. “Specifically, historically low jobless claims, high payroll growth, and the low unemployment rate continue to reaffirm our forecast for a strong labor market. There has not been much change in workers’ willingness to switch jobs, and businesses are holding on to their current workforce in a tight labor market.”

The report also states that Freddie Mac lowered its unemployment rate forecast to 3.7% for both 2019 and 2020.

Also included in the report was Freddie Mac’s notion that strong homebuilder confidence and lower mortgage rates will help housing starts and home sales recover from their slump in 2018. Freddie Mac anticipates housing starts to be 1.26 million in 2019, then rising to 1.34 million in 2020.

Home sales are forecast for 6 million for the remained of 2019, before rising to 6.12 million in 2020. Prices are anticipated to increase 3.4% in 2019 and then drop to 2.6% next year. 

Freddie Mac also said the volume of mortgage originations have responded to lower mortgage rates, and is a trend it expects to continue.  The refinance share of originations is expected to grow to 34% in 2019, before decreasing slightly to 28% in 2020. 

The total annual mortgage origination is forecast to be 1.8 trillion in 2019 and 1.7 trillion in 2020.