The decline in mortgage rates, that fell at the start of 2019 after peaking last fall, is likely to provide some welcome relief to the housing market, according to Freddie Mac's latest monthly forecast.
The forecast projected a slight deceleration in the overall economic growth predicting the U.S. GDP growth at 2.5 percent in 2019 and 1.8 percent in 2020. Despite uncertainties in other areas of the economy, the forecast said that the labor market would hold strong. It expected unemployment to drop slightly to 3.6 percent by the end of 2019, "before returning to a more sustainable long-term rate of 3.9 percent in 2020."
The forecast also revised its projections for mortgage originations as well as the refinance share of originations in 2019. "We expect single-family mortgage originations to increase 2.6 percent to $1.69 trillion in 2019 and remain around that level in 2020," said Sam Khater, Chief Economist, Freddie Mac. "With mortgage rates easing up since the end of 2018, we revised up our forecast of the refinance share of originations to 27 percent and 24 percent in 2019 and 2020, respectively."
The forecast predicted the 30-year fixed-rate mortgage rate to remain unchanged from 2018 averaging 4.6 percent in 2019 before increasing to 4.9 percent in 2020. The low mortgage rates and increase in originations are also expected to drive home sales, Freddie Mac said in its forecast. It projected sales to "slowly regain momentum" and increase to 6.10 million by the end of 2019 and 6.12 million in 2020. The growth will be mostly driven by existing home sales, while new home sales are expected to remain at their current levels, Freddie Mac said.
However, total housing starts are expected to remain below the long-run demand, increasing to 1.29 million units in 2019 and 1.36 million units in 2020, the forecast predicted. Freddie Mac said that this was due to a lack of labor and other factors that will keep the recovery in housing construction constrained. Home price growth is also expected to decelerate with prices expected to increase 4.1 percent in 2019 before decelerating further to 2.8 percent growth in 2020, the forecast said.