‘Great Expectations’ Remain for Housing in 2015 Despite Recent Economic Slowdown

Despite a brutal winter and a slowdown in economic activity in the first quarter, Freddie Mac is sticking to its previous prediction that 2015 will be the best year for home sales since 2007, according to Freddie Mac's U.S. Economic and Housing Report for April 2015 released Thursday.

Freddie Mac's April prediction for GDP growth of 2.6 percent is a slight decline from March's forecast of 2.8 amid disappointing incoming data from the first quarter and harsh winter weather. This did not put a damper on Freddie Mac's overall forecast for housing, however. In fact, the title of the report, "Great Expectations," indicated that analysts at Freddie Mac still believe 2015 will be the best year for housing since the pre-recession days.

"As in recent years past, we entered the year with great expectations and optimism for the year ahead," Freddie Mac Deputy Chief Economist Len Kiefer said. "The first quarter, once again, defied those expectations, bringing brutal winter and a slowdown in economic activity. However, we also remain optimistic about trends in housing markets moving forward for the remainder of the year with mortgage rates low, purchase applications up and pending home sales on a positive upward trend."

Despite a slight downward revision in the forecast for housing starts from March (1.15 million compared to 1.18 million) following a cold winter, pent-up demand is expected to bolster home sales for the remaining three quarters of 2015 – keeping Freddie Mac's projection for home sales this year at 5.6 million, the best year for home sales in eight years.

"Even with a slow first quarter, economic growth should be solid enough for robust job gains and improving housing markets," Kiefer said. "Expect housing markets to weather rising mortgage rates in the short term, however, the longer-term issue of low levels of inventory will be with us for several years to come."

In the April outlook, Freddie Mac forecasted home prices to increase by 4 percent this year, slightly up from March's projection, while mortgage rates are expected to boost the refinance volume share of originations up to 41 percent this year. Mortgage rates are expected to slowly rise over the next sixth months and then pick up their rate of increase near the end of the year around an anticipated increase in rates by the Fed.

"In the long run, our expectations are grounded and measured based on the simple facts of supply and demand and the country's current demographic shift," Kiefer said. "The demand isn't fully there yet from millennials and our current rate of economic growth of about 2 percent for Real GDP, only supports a gradual recovery. We do expect acceleration in growth and housing demand, but even under our upbeat forecast the housing markets return to a stable range of activity remains a couple of years away."

A video preview of Freddie Mac's April 2015 Housing and Economic Outlook can be found here.