Freddie Says Low Rates Continue to Boost Mortgage Market

Written By: Joel Palmer, Op-Ed Writer

Low mortgage rates since the end of May have boosted the housing market and Freddie Mac economists expect that trend to continue for the remainder of the year.

In its July 2019 Economic and Housing Research Forecast, Freddie Mac revised down its quarterly forecasts for the 30-year fixed-rate mortgage for this year and next year, predicted a recovery in housing starts, and forecasted an increase in originations.

“Over the past few months, the uncertainty regarding trade disputes has led to a lowering of long-term interest rates, including mortgage rates,” stated the forecast report.

In response, Freddie has revised the 30-year mortgage rate to 4.1 percent in 2019 before it decreases to 4 percent next year.

“While our 2019 annual forecast for the Federal Funds rate remains unchanged from our previous forecast at 2.4 percent, we expect the annual average for 2020 to be 2.3 percent, which assumes no further rate cuts in 2020. The lower federal funds rate will turn investor interest towards more lucrative stocks and away from government bonds. We forecast the 10-year Treasury rate to decline to 2.3 percent in 2019 and stay at the same level in 2020. Also, maintaining the spread between government bond yields, we expect the 1-year Treasury rate to be 2.2 percent in both 2019 and 2020.”

Freddie said it anticipates annual housing starts of 1.26 million in 2019 and 1.34 million next year.

“Given the combination of increased homebuyer demand and a housing supply shortage, we expect home sales to be 6.00 million in 2019, before reaching its 2017 levels in 2020 at 6.12 million,” the report said.

The report also projects home price appreciation of 3.4 percent this year, before moderating to a downward revised growth rate of 2.6 percent in 2020.

The forecast noted that lower mortgage rates have help boost mortgage origination volumes. Freddie anticipates refinances to account for 34 percent of mortgage starts this year and 28 percent in 2020. Total annual mortgage originations are expected to total 1.8 trillion in 2019 and 1.7 trillion in 2020.

The report has forecasted GDP growth of 2.1 percent for full year 2019 and 1.8 percent next year, due to the “lasting impact of trade tensions (that) will have some visible impact on second and third quarter GDP growth in 2019.” GDP growth won’t have the help of tax cuts and fiscal stimulus as what occurred in 2018.

Freddie said it expects consumer prices to rise 2.4 percent in the third quarter of this year “amid declining gasoline and fuel prices as well as weak wage growth.” Its full year forecast of 2.1 percent remains unchanged, and it expects 2 percent growth next year.

Freddie has lowered its unemployment rate forecast to 3.7 percent for both 2019 and 2020.

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.