Freddie Mac's April economic forecast focuses on interest rates and their impact on housing as the company's Economic & Housing Research Group revises several of its earlier predictions. The report notes that mortgage interest rates, which started to ease in November, saw a drastic decline at the end of March and have remained near the same level since then. At the same time, the job market continues to be strong and wage growth has been increasing moderately. These factors are all conducive for "a steadily growing housing market in 2019," they say.
It appears that the report was written before the unexpectedly high initial estimate of first quarter GDP which came in at 3.2 percent. The consensus was for growth of 2.3 percent, a slight improvement over the 4th quarter's 2.2 percent. Freddie Mac's economists said that, given the weakening consumer spending, they continued to forecast an overall GDP growth rate in 2019 and 2020 to be 2 percent and 1.8 percent respectively. They expect that overall consumer price growth this year will be at 1.8 percent, below the Federal Reserve target but rising to 2.1 percent in 2020.
The news is good for prospective home buyers and those who haven't yet refinanced. Estimates for the 30-year fixed and the 5/1 adjustable rate mortgages were revised down from the March forecast. The economists expect the fixed rate average for the year to be 4.3 percent and 4.5 percent in 2019 and 2020 respectively, lowered from 4.5 and 4.8 percent in their March forecast. They predict the 5/1 ARM will remain at 3.8% for the remainder of this year, the same as last year and down from their earlier forecast of 4.0 percent.
They also expect Treasury yields to continue at low rates, with the 10-year rate to average 2.6 and 2.7 percent in this year and next while the 1-year rate will be unchanged this year and next at the 2018 rate of 2.4 percent.
Based on remarks by the Federal Reserve at its last Open Markets Committee meeting, Freddie Mac's economists assume there will be no further rate hikes from that direction in the near future. They hold to their previous forecast that the Federal Funds effective rate will remain at 2.4 percent for this and the next calendar year.
The company has lowered expectations for housing starts in the first quarter from a 1.25 million annual rate to 1.22 million which reduces the year's total to 1.26 million from 1.27 million. Total starts should recover to 1.33 million units next year.
They cite the healthy home sales numbers thus far in 2019 as well as a strong job market and low mortgage rate as reasons to assume homebuyer interest will be piqued but they are holding firm with their predictions that total home sales will be higher than last year at 5.98 million and growing to 6.14 million in 2020. The increase from 2018 will mostly come from existing home sales.
Home price predictions will stay at 3.5 percent for this year, but have been increased to reflect a 2.6 percent rate of appreciation next year.
Higher levels of refinancing are expected to spur single-family mortgage origination volumes during the remainder of 2019 with those who took out mortgages in the last half of 2018 being especially prone to refinance. Freddie Mac is looking for an origination volume of $1.737 trillion this year and $1.701 trillion in 2020. The share of refinancing is expected to increase to 33 percent and 27 percent respectively for the two years.