Fannie, Freddie project steady housing growth in 2017-18

Written By: Joel Palmer, Op-Ed Writer

Economists at both Fannie Mae and Freddie Mac forecast housing market growth in 2017 from last year. But the rate of growth will be slower this year and it will moderate even more in 2018, according to those forecasts.

Business has been good so far for mortgage processors and underwriters.  Freddie Mac’s Economic & Housing Research Outlook for May indicated a housing market that has so far exceeded expectations for the year. Both existing and new home sales beat previous projections, with total home sales in the first quarter the highest since 2007. 

Freddie’s report says the recent sales data and the current mortgage rate environment has led the company to forecast a slight increase in home sales for the full year. The new forecast is for 6.02 million total home sales in 2017, with the same number projected for 2018.

Mortgage originations for the first quarteralso exceeded Freddie’s previous forecast $60 billion, which the company attributed to higher cash-out refinancing plus a decline in mortgage rates in March. Because of these recent events, Freddie has increased its 2017 forecast for mortgage originations by $200 billion and by an additional $100 billion for 2018. higher than we forecasted primarily due to resilience in refinances.

The report also highlighted the lack of housing supply, which in combination with growing demand, has pushed the average sale price up 6.4 percent in the past year.

“With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade,” said the Freddie report.

The Fannie Mae Economic & Strategic Research (ESR) Group’s May 2017 Economic and Housing Outlook maintained overall economic growth expectations for 2017 at 2 percent.

“Once again, our full-year growth forecast remains intact as the economy grinds along, with the prospect of material policy changes appearing to be delayed,” said Fannie Mae Chief Economist Doug Duncan in the report.

Fannie projects a rise in consumer spending, an increase in business production, and a tight labor market, all of which will contribute to a projected increase in interest rates later this year. Mortgage rates for 30-year fixed-rate loans are expected to remain between 4 percent and 4.2 percent between now and the end of 2018.

Fannie is forecasting a 3.4 percent increase in total home sales for 2017 to 6.2 million. Current projections call for a 2.1 percent increase in 2018 to 6.3 million home sales.

That includes a 10.3 percent increase in new single-family home sales this year and 9.9 percent growth next year.

Mortgage originations for home purchases are expected to grow slightly this year. That growth will be offset by a decline in refinancing activity due to higher rates. Fannie projects that refinancing will account for 32 percent of mortgage originations in 2017 and 25 percent in 2018, compared with 48 percent last year.

“We expect consumer spending to resume its role as the biggest driver of growth in the second quarter amid improvements in the labor market,” said the Fannie report.“Positive demographic factors should continue to reshape the housing market, as rising employment and incomes appear to be positively influencing millennial homeownership rates. However, the tight supply of homes for sale continues to act as both a boon to home prices and an impediment to affordability.”

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

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