Due to declining refinances and rising mortgage rates, originations will drop more than 25 percent this year, according to a recent outlook report [1] from Freddie Mac [2].
Released Wednesday, the outlook predicts that national growth and employment improvements won’t be enough to stifle rising interest rates in 2017, especially as the Fed hints at future rate hikes down the line.
“The housing market posted strong gains in 2016,” the report stated. “Total home sales of just over 6 million units marked the largest annual growth in almost 10 years, and mortgage originations reached $2.1 trillion. However, rising mortgage rates will weigh on the market going forward, and mortgage originations will drop a little over 25 percent in 2017, almost exclusively as the result of plummeting refinances.”
In Q4 2016, the nation saw a 1.9 percent jump in GDP growth, and as of February, the Consumer Price Index increased 2.7 percent over the year. Unemployment also dropped 4.7 percent, and nonfarm employment rose by more than 230,000 jobs.
Despite this growth, the Fed announced a rate hike earlier this month and hinted that more may be in the future for 2017. As a result, mortgage rates are on the rise, averaging 4.3 percent by the week of March 16—about half of a percentage point higher than they were one year ago and three-quarters higher than last summer.
But interest rates aren’t the only thing putting impacting housing affordability. According to Freddie Mac’s outlook, home prices are outpacing income growth significantly, and that’s putting a home purchase out of reach for many citizens.
“Since January 2000, home prices have risen a bit faster than incomes, though recently home price growth has outpaced income growth by a wider margin,” the report stated. “But house prices have accelerated in recent years while per capita disposable income growth has been more stable. For example, in 2016, house prices rose 6.2 percent while per capita disposable income increased 3.4 percent.”
Come spring, this disconnect could block many potential homebuyers from the market, the report stated.
“As we get into the spring selling season, we expect affordability to start to bite in many markets pushing some prospective buyers to the sidelines and contributing to a modest decline in total home sales in 2017 relative to 2016.”
In total, Freddie Mac predicts total 2017 home sales to hit around 5.9 million. To read the full outlook report, visit FreddieMac.com. [1]