Freddie Mac expects 2016 to bring a ‘Jekyll and Hyde’ mentality to housing, with the government-sponsored enterprise predicting a 3 percent increase in total home sales and a 16 percent jump in year-over-year home sales despite the expected, negative influence of rising interest rates throughout the year.
Freddie released these predictions in its monthly Insight & Outlook report for the month of December.
So what should lenders and homeowners expect in 2016? Freddie believes the 30-year, fixed-rate mortgage will average below 4.5 percent for 2016 on an annualized basis. However, the Fed’s decision to hike the federal funds rate for the first time in nearly a decade will lead to “gradually higher mortgage interest rates,” Freddie said.
While higher mortgage rates generally spell a slowdown for housing and home affordability, Freddie says a ‘strengthening labor market’and pent-up demand from 2015 will boost home sales momentum next year.
Freddie still predicts home price growth will moderate slightly to 4.4 percent, driven by declining affordability from the buyer’s perspective and the Fed’s interest rate tightening.
Still, Freddie sees doses of optimism with total housing starts expected to increase 16 percent year-over-year and total home sales to increase 3 percent.
Among its other predictions, Freddie says higher interest rates will curb refinance volumes pushing overall mortgage originations lower in 2016 despite the expectation that home purchases will increase.
Freddie also predicts the growth of marketplace lending and Internet outreach in originations will change the face of the industry next year and beyond . PricewaterhouseCoopers, LLP, even predicts that peer-to-peer originations will continue to grow, reaching approximately $150 billion by 2025.
Freddie concludes that unsecured consumer lending is the dominant form of lending in the market, followed by loans to small and medium-sized business and student loan refinancings. Morgan Stanley estimates that marketplace mortgage lending could reach $14 billion in originations by 2020.
"It's too soon to tell whether marketplace lending is the next Uber or just another flash in the pan,” said Sean Becketti, Chief Economist, Freddie Mac. “The current generation of marketplace lenders all may fail in the next economic downturn. Regulators may impose higher standards on marketplace lenders. The cost advantages of marketplace lending may not extend to mortgage lending. But innovation is difficult to stop. New startups will look for ways to improve upon current marketplace lending business models. Large bank lenders may incorporate the most successful of the marketplace lending innovations. It's difficult to say where all this will lead, but one prediction is indisputable. Expect change."
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