Despite improved economic conditions and a better inventory, the housing market has stalled, according to a report from Freddie Mac. The Freddie Mac September Forecast found that weaker affordability, homebuilder constraints and ongoing supply and demand imbalances have contributed to fewer home sales over the summer compared to last year.
“The spring and summer home buying and selling season ultimately ended up being a letdown, despite a faster growing economy and healthy demand for buying a home,” said Freddie Mac Chief Economist Sam Khater. “Unfortunately, too many would-be buyers continue to be tripped up by not enough affordable supply and the one-two punch of much higher home prices and mortgage rates.”
Freddie Mac noted that the economy is “firing all cylinders”, growing at its fastest pace in four years. According to the GSE, solid consumer spending and business investment should keep the economy on a very strong growth path of 3.0 percent this year. However, that strength has not been reflected in the housing market. Mortgage rates fell slightly over the summer, but most have inched back up again. The 30-year fixed-rate mortgage is expected to average 4.5 percent this year and 5.1 percent in 2019.
Additionally, Freddie Mac notes that affordability has been a problem, with not enough moderately-priced homes on the market. All home sales are forecasted to decline modestly this year to 6.07 million from 6.12 million in 2017. Decreasing refinance activity and home sales from a year ago are expected to cause single-family first-lien mortgage originations to slide around 9 percent this year to $1.65 trillion.
Freddie Mac also found that less homeowners have been tapping into their equity. Though the share of cash-out refinances last quarter was the highest since Q3 2008, the total dollar volume of cash-out refinance activity remains much lower than the peak seen more than a decade ago. The $15.5 billion in net home equity cashed out last quarter was less than the 2006 peak of $102.3 billion
Added Khater, “Prospective buyers are being squeezed the most where demand is the strongest: the entry-level portion of the market. While price appreciation is welcomingly starting to ease in many markets, weakening affordability continues to hamper overall activity.”