Economic Indicators Point to Strong Home-buying Season

Written By: Joel Palmer, Op-Ed Writer

Housing experts continue to forecast a busy rest of the year for mortgage processors and underwriters.

Fannie Mae, Freddie Mac and the National Association of Realtors (NAR) released forecasts last week indicating that a strong economy, healthy labor market and low mortgage rates will keep the housing market steady for the remainder of 2019.

Fannie Mae increased its forecast for both purchase and refinance mortgages due to strong demand, improving inventory, and better housing affordability.

“Residential fixed investment may have dragged on growth for the fifth consecutive quarter, but we remain optimistic that the spring home-buying season will be a productive one,” said Fannie Mae Chief Economist Doug Duncan.

Freddie Mac expects total home sales to surpass 2018 levels and reach 5.98 million units in 2019. Most of the increase is expected to come from existing home sales.

“Our outlook for the housing market remains largely unchanged,” said Sam Khater, Freddie Mac’s chief economist. “We still expect stronger home sales and housing starts in the coming months due to favorable market conditions and accelerating wage growth.”

Dr. Lawrence Yun, chief economist at the National Association of Realtors, pointed out that housing inventory has expanded on a year-over-year basis for the past eight months. Also, wage growth bodes well for housing demand.

"With strong job creation, wages are growing at a faster pace. Finally, wages and home prices are aligning," Yun said.

Fannie included a note of caution in its forecast. Its Home Purchase Sentiment Index was lower in April than it was in March, as an increasing share of respondents said it was a bad time to buy. This was due largely to high home prices.

“This mixed housing sentiment, the continued tightness in housing inventories, and elevated home prices relative to incomes will likely weaken sales momentum in the latter half of this year.” said the report. “Thus, after a solid rebound in the first half, total home sales are expected to moderate and level out by the end of the year, especially as economic growth slows heading into 2020.”

Additional indicators included in last week’s forecasts include:

•Freddie, Fannie and NAR are forecasting the 30-year fixed mortgage rate to remain between 4.2 and 4.4 percent for the remainder of the year.

•Pending sales and purchase mortgage applications are trending upward.

•Fannie noted that housing affordability is being helped by an increasing focus from builders on entry-level and modest-sized homes. That led to an increasing share of low- and moderate-priced new homes sold in the first quarter of 2019 and a 7.1 percent lower median price for new home sales.

•Freddie pointed out, however, that its total housing starts forecast remains unchanged. Downward revisions to January and February data lowered its 2019 annual forecast.

•Freddie expects single-family mortgage originations to increase for the remainder of 2019.

•Freddie also projects the refinance share of mortgage volume to increase from 30 percent of all originations in 2018 to 33 percent in 2019.

•Cash-out borrowers represented 76 percent of all refinance loans in the first quarter of 2019. That’s down from 82 percent at the end of 2018.

“Our quarterly report on refinance activity shows that few U.S. homeowners are choosing to tap into their largest source of wealth despite having a record $16 trillion in home equity available to them. Most homeowners remain reluctant to increase their mortgage balance, whereas we continue to see balance increases on auto loans, credit cards, and student loans,” said Khater.

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.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.