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Freddie Mac Forecasting Banner Year in Home Sales
Low Mortgage Rates More Than Offset Affordability


In its "Outlook" for September 2016, Freddie Mac has predicted 2016 will turn out to be the best year in terms of new home sales in the past decade.

Freddie Mac forecast months earlier that 2016 could turn out to be the best year in home sales in a decade. Fast forward to its September update: Freddie Mac is now saying, basically, that its forecast appears probable.

"Even as housing market activity begins its seasonal cool-down, our forecast for the best year in total home sales since 2006 looks increasingly on the mark," Freddie Mac said in its "Outlook" for September 2016.

"Through the first seven months of the year, home sales -- both new and existing homes -- totaled 3.4 million, the highest total for this same time period since 2006. And indications from both mortgage applications and pending home sales imply this momentum will be sustained throughout the third quarter. As such, housing remains a bright spot for the economy as the rest of the economy sputters along."

The 30-year fixed rate mortgage has ranged between 3.41 and 3.50 percent from June 23 to Sept. 15, 2016. And while Freddie Mac expects this rate to gradually rise to about 3.6 percent by the end of 2016, it said: "This would be the lowest annual average in the past 40 years." In 2017, Freddie Mac said it believes the rate will range from between 3.7 and 3.9 percent.

"The decline in rates from 4 percent at the end of 2015 to about 3.5 percent in the third quarter of 2016 is helping to support affordability and offset higher home prices," Freddie Mac said. Home prices have risen about 3 percent from December 2015 to June 2016. But the combination of rising home prices and falling rates has "increased homebuyer affordability nationwide," Freddie Mac said.

"In other words, the impact of lower mortgage rates has more than offset the rise in house prices, at least nationally. Of course, some markets have seen six-month house price appreciation of over 6 percent, but on balance, lower rates have maintained or slightly improved homebuyer affordability."

Freddie Mac has revised its forecast of home price appreciation to 5.6 percent and 4.7 percent in 2016 and 2017, respectively. This compares to last month's forecast of 5.3 percent for 2016 and 4.0 percent for 2017.

"We still expect house price growth to moderate over the next year as new supply comes to market and higher mortgage rates dampen homebuyers' demand, but at a more moderate pace than before," Freddie Mac said.

In addition, mortgage originations will "surge" in the third quarter of 2016," Freddie Mac said, adding: "Home sales in July 2016 were off the 2015 pace, but pending home sales and home purchase mortgage applications are up. In fact, according to the National Association of Realtors, pending home sales are at their second highest level in over a decade, and purchase mortgage applications are up 11 percent from last year. Even if home purchase originations are flat year-over-year, total originations will rise due to strong refinancing activity."

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October 19, 2018, 11:39 am PDT

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