Government-sponsored mortgage-buyer Freddie Mac made some changes to its monthly U.S. Economic and Housing Market Outlook, a prospectus of sorts that offers forecasts on various housing-related statistics. With mortgage rates down and the employment situation improving, Freddie Mac now believes that mortgage originations may beat the organization’s previous predictions.
Freddie Mac increased its mortgage originations forecast from $1.2 trillion last month to $1.3 trillion. The refinance share of all mortgage originations is now forecasted to be at 40 percent, up from the previous month’s prognostication of 35 percent. Home sales and housing starts, on the other hand, remained the same, as Freddie still expects these metrics to come in at 5.6 million sales and 1.18 million starts.
Home prices, which were previously forecast to appreciate by 3.5 percent in January, may likely tick up by 3.9 percent in calendar 2015; this is a far more reasonable rate of appreciation than the rapid increases that marked most of the previous calendar year.
“Data for the fourth quarter of 2014 and the first quarter of 2015 indicate that overall economic growth may have slowed from the torrid pace in the third quarter of 2014,” read a statement from Freddie Mac deputy chief economist Len Kiefer. “We’ve lowered our overall projection of first-quarter growth to 2.5 percent (from 3.0 percent last month) and lowered 2015 annual growth by 0.1 percentage points to 2.9 percent for the year. Due to declining interest rates in January, we have lowered the projected path for most interest rates.”
At the present, most forecasters and market analysts believe the Federal Reserve will be increasing its overnight borrowing rate sometime in the second half of 2015, and this is expected to be a driver of major increases to short-term interest rates. Long-term rates, however, may only increase at a slow and steady pace.
Freddie Mac’s February 2015 forecast now has 30-year fixed-rate mortgages averaging 3.9 percent for the year, down from the previous forecast of 4.2 percent. Currently, Freddie Mac is showing 30-year FRMs hovering at an average of 3.76 percent, which is nine basis points higher than the week before, but over half a percentage point lower than the year-ago average of 4.33 percent.
Kiefer also offered some insights on the broader U.S. economy, as well as his overall outlook in terms of global economic growth; Freddie’s chief economist says he is “optimistic” about the domestic economy for calendar year 2015. “We also do not foresee a major turnaround in the global growth picture and therefore recent trends in foreign buying of long-term U.S. securities activity should continue,” Kiefer added. “That means continued downward pressure on long-term interest rates here in the U.S. Even if the Federal Reserve begins raising short-term rates later this year, don’t expect to see long-term rates — including mortgage rates — increase much.”
In the light of this, he believes housing consumers should benefit from these trends, especially in the run-up to spring home buying, as lower rates can soften the blow of continued home price increases.