Will the current negative trends such as rising interest rates and the lack of housing supply persist in 2019? That, according to Freddie Mac's November Forecast, is the biggest question facing the housing market today.
The forecast projected a healthy 3 percent growth in GDP until the end of 2018 before it slowed to 2.4 percent in 2019 and 1.8 percent in 2020. For the third quarter, Freddie Mac said that the GDP growth had been stronger than expected at 3.5 percent due, in part, to a 4 percent increase in consumer spending, while the labor market continued to be "the strong point of the economy."
But despite the strong job growth, the forecast revealed that wage growth "has accelerated only modestly" with the average hourly earnings growing only 0.2 percent in October. The report projected unemployment dropping further to 3.6 percent in 2019 before it increased to "a more sustainable long-term rate of 4 percent in 2020."
While the report remained upbeat about the overall economy, it revealed that current housing market trends such as rising interest rates and the lack of supply of affordable housing remained concerns going into 2019.
“Almost all the trends in the U.S. housing market have been negative in recent months as housing market activity continues to adjust to higher mortgage rates,” said Sam Khater, Chief Economist at Freddie Mac. “If new home sales are to resume growth in 2019, builders may have to shift their focus to more modestly priced homes and smaller sized homes to help offset housing affordability concerns. But with cost pressures pinching profitability, this will be a significant challenge.”
The report indicated that home sales were expected to decrease 1.6 percent to 6.02 million in 2018 before "slowly regaining momentum" and increasing 1 percent to 6.08 million in 2019 and by 2 percent to 6.20 million in 2020.
Home prices were also projected to increase 5.1 percent in 2018 before they softened to 4.3 percent in 2019 and 2.9 percent in 2020.
The report found that adjusted for inflation, an estimated $14.2 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages in the third quarter of 2018, down from $18.3 billion a year earlier and "substantially less than the peak cash-out refinance volume of $102 billion during the second quarter of 2006."
Mortgage originations were also expected to decline 9.9 percent year-over-year to $1.63 trillion in 2018, falling slightly to $1.62 trillion in 2019 before dropping further to $1.60 trillion in 2020 as a result of "the shrinking refinance activity."
Click here to read the full Freddie Mac forecast.