Even as businesses begin to reopen, the unemployment rate remains a cause for concern among economists. That makes for much fiscal uncertainty. But despite weakness in the labor market, the housing sector remains robust—it has been reported over the past couple weeks [1], and the Q3 forecast from Freddie Mac [2], published this week, reinforces as much: "Even though the overall economic recovery is uneven," its authors noted, "the housing market has made a remarkable comeback."
Total mortgage origination volumes increased over the last several months, according to the forecast. Experts reason that many homeowners are continuing to take advantage of historically low mortgage rates.
"Even as the economy faces challenges from the coronavirus pandemic, the housing market has been showing strength," said Sam Khater, Freddie Mac’s Chief Economist. "Refinance activity is solid and homebuyer demand continues, resulting in increased sales and an acceleration in house price growth."
Freddie's forecast highlights:
- The average 30-year fixed-rate mortgage is expected to be 3.2% in 2020 and 3.0% in 2021. "Given weakness in the broader economy, the Federal Reserve’s signal that its policy rate will remain low until inflation picks up, and no signs of inflation, we forecast mortgage rates to remain flat over the next year. From the third quarter of 2020 through the end of 2021, we forecast mortgage rates to remain unchanged."
- Home sales are expected to increase in 2020 to 6.2 million homes and decrease in 2021 to 6.1 million homes. "There was a sizeable increase in total home sales, with strong monthly showings from both new and existing sales. In August, new homes sales surpassed 1 million units at an annualized rate, the highest since Q2 2006. Existing home sales reached 6 million units at an annualized rate in the same month. The recent surge in home sales will help propel total annual sales to 6.2 million in 2020. While construction has rebounded, the slowdown in activity in the spring and early summer of 2020 will translate to fewer new homes available for sale next year."
- House price growth is expected to increase to an annual rate of 5.5% in 2020. In 2021, that rate is expected to be 2.6%. "This surge in home sales has put pressure on housing inventory and resulted in an acceleration in house price growth this summer. Total housing inventory declined 18.6% in August from the same month a year ago."
- Purchase originations are expected to increase to $1.414 trillion in 2020 and $1.445 trillion in 2021.
- Refinance originations are expected to be $2.168 trillion in 2020 before falling to $1.240 trillion in 2021.
- Overall, the Forecast expects annual mortgage origination levels to be $3.582 trillion in 2020 and $2.685 trillion 2021.
Prepared by Freddie Mac's Economic and Housing Research Group: