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Homebuyers, Fixed-income Families Brace for Impact of Rising Prices

Freddie Mac [1] has released its March 2018 Economic and Housing Research Outlook [2] report, titled ‘Home Price Appreciation: Winners and Losers.’ This report was prepared by the GSE’s Economic and Housing Research group and focuses on how increasing home prices are helping many current homeowners build equity, yet are showing negative impacts on first-time buyers and fixed-income households.

Though mortgage rates have remained historically low, they have been increasing at a steady pace since the start of this year, reaching 4.44 percent, a .49 percent increase from January. That growth is expected to continue, with the report anticipating the 30-year fixed mortgage rate averaging 4.9 percent in the fourth quarter of 2018.

Since the end of the Great Recession in 2009, home prices have risen 37 percent nationwide, with the last year experiencing an increase of 7 percent. This increase has helped homeowners garner $14.4 trillion in home equity in the fourth quarter of 2017. Black Knight Data and Analytics reports that homeowners with mortgages have a collective $5.5 trillion in equity that is available to borrow against.

"Overall, U.S. housing markets have been on the upswing. While housing market trends have been generally favorable, not everyone has shared equally in the gains,” said Len Kiefer, Deputy Chief Economist. “Existing homeowners have largely seen their properties increase in value, helping to build equity. In many parts of the country, home values have more than recovered from the Great Recession, reaching new (nominal) peaks, and the share of underwater homeowners has dropped significantly."

The outlook forecasts a 5.1 percent increase in home prices in 2018 and is anticipating a continuous rise above the rate of inflation as new construction continues to fall short of inventory demand. These increases will begin to show an impact on first time home buyers, who may be pushed out of the market. Home price appreciation may also develop into a burden for homeowners living on fixed incomes, as property taxes rise in tandem.