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Freddie Mac remains optimistic at the future of the housing market, despite dwindling inventory, rising home prices, and increased interest rates that would otherwise point the other way, according to their Outlook Report for the month of July.
The report examines inventory shortages and the fall of residential construction, which has dropped 14 percent since year-end 2016, further deepening the inventory shortage. Although, Freddie notes that the lack of housing starts is not because there isn’t a market for it, or due to regulations or land costs, but rather rising costs of building materials and a shortage of skilled laborers. The number of skilled laborers returning to the workforce has still not hit its post-recession numbers, mostly due to increased enforcement of immigration laws and problems with coaxing millennials into the construction industry.
It also notes that the number of open construction jobs has remained on the rise since the lowest point of the recession, and that as of May, total open construction jobs numbered around 154,000. They still, however, expect the year-end housing starts to fall around 1.27 million.
Freddie is confident that demand for housing will remain strong for the rest of the year, despite an expected 6 percent increase in home prices. Low mortgage rates should fuel the demand, which is expected to stay around 4 percent until the end of the year.
"A decade after the Great Recession, the housing market is rebounding,” said Sean Becketti, Chief Economist for Freddie Mac. “House prices today are higher than they were at the peak in the summer of 2006, near-record-low mortgage rates have boosted housing demand, and sales volume is robust. The spoiler is the lean inventory of houses for sale. Nationally, just over five months of supply is for sale and hot markets are much tighter than the national average. So far, residential construction is not doing much to fill the gap."
In addition to this report, Freddie Mac recently announced it will be changing its requirements for Home Possible Mortgages, which includes Home Possible Advantage Mortgages—Freddie's low downpayment mortgage options. As of November 1, 2017, the current 1 percent contribution requirement, before gifts or grants from the originating lender are allowed, will be raised to 3 percent.
