Low supply in the U.S. real estate market has not kept housing from being a “bright spot” amid a tepid global economy, even as refinance activity slows, according to Freddie Mac’s recently released monthly Outlook for October. The Outlook expects the mortgage market to transition to a “purchase-dominated mix” next year.
“The economy and labor markets are looking better,” says Sean Becketti, chief economist, Freddie Mac. “We’re even seeing modest wage gains, and Fed watchers are increasingly predicting a December rate hike as things improve. However, worldwide economic growth is weak and its prospects have gotten worse. This may all sound familiar because we’ve been here before…last year. As the economy sputters along a little bit faster than stall speed, the U.S. housing market continues to be a bright spot, though there’s less room to run than in the prior few years. Unlike new-home sales, existing-home sales have nearly recovered back to pre-recession norms. Regardless, we see new-home sales improving some next year driven by increases in new single-family housing construction, which will push total home sales slightly higher.”
Highlights from the Outlook include:
- Continued strength in consumer spending and a reduction in the drag from inventory spending should boost second-half growth, resulting in full-year 2016 GDP growth of 1.6 percent. The economy should do modestly better in 2017, posting 1.9 percent year-over-year growth.
- A mature expansion operating near full employment only needs to generate enough jobs to keep the unemployment rate steady. Expect the unemployment rate to decline slightly over the next year-and-a-half, ending 2017 at 4.7 percent.
- Even if worldwide bond yields recover to the pre-Brexit status quo, mortgage interest rates are likely to remain low for an extended period. Expect a gradual rise in rates throughout the remainder of 2016 and into 2017, with the 30-year fixed-rate mortgage averaging 3.9 percent in the fourth quarter of 2017.
- Don’t expect much increase in total home sales going forward, with a slight decline in seasonally-adjusted sales in the fourth quarter. Next year, rising new-home sales driven by increases in new single-family housing construction will push total home sales slightly higher, to 6.16 million in 2017 compared to 6.04 million in 2016.
- Forecasting house prices will grow at a 5.6 percent annual rate in 2016, moderating to 4.7 percent in 2017.
For more information, please visit www.freddiemac.com.