Freddie Mac Outlook Predicts Higher Interest Rates

Freddie Mac released its U.S. Economic and Housing Market Outlook for May today, revealing that low mortgage rates kept affordability high in the first quarter of this year for buyers, but housing markets probably will see interest rates increase for the rest of the year. The outlook credits market participants attempting to anticipate the Federal Reserve's timing around rising short term interest rates will likely be the cause of the increase.

“For the remainder of this year, we're likely to continue to see these mortgage rate swings as market participants try to anticipate Fed timing around rising short term interest rates,” said Len Kiefer, deputy chief economist, Freddie Mac. “Unfortunately, perspective homebuyers may experience bouts of affordability shock in many housing markets."

Outlook Forecast:

• Due to weak first quarter data, the forecast for economic growth for 2015 dropped from 2.6 percent to 2.3 percent.
• With tight for-sale inventories, house price growth continues to beat expectations. Expect 2015 house price growth to be 4.5 percent, revised up from 4.0 percent last month.
• Due to strong refinance activity through the first four months of the year, the forecast for 2015 mortgage originations has been revised up to $1.35 billion.
• Due to low mortgage rates and strong refinance volume, the forecast for the refinance share of originations in 2015 has been boosted to 43 percent.

“The labor market has added 5 million additional jobs, the unemployment rate is significantly lower, and housing markets are generally in much better condition than two years ago,” Kiefer said. “So far it's been low mortgage rates that have helped to keep homebuyer affordability strong in the face of rising house prices, while income growth remains stagnant."

For a commentary on the outlook with projection tables, click here.

For a video of Freddie Mac deputy chief economist Len Kiefer discussing the outlook, click here.