Housing Market Forecast: Freddie Mac Reveals What to Expect – Norada Real Estate Investments

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Experts predict the future of home prices & sales in a cooling market. Will rates stay high? Is it a buyer’s opportunity? The U.S. housing market, which enjoyed stable mortgage rates at the start of the year, faced a setback in April as rates increased. This led to a 2.3% drop in total home sales (both existing and new) from March and a 2.7% decrease compared to April of last year.

Existing home sales fell to an annual rate of 4.14 million, a decline of 1.9% both month-over-month and year-over-year. New home sales saw a more significant drop of 4.7% from March, reaching an annualized rate of 634,000, representing about 13% of total home sales.

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Despite the overall low housing inventory due to the mortgage rate lock-in effect, there was a noticeable increase in both existing and new home inventories.  Existing home inventory grew by 16% year-over-year to 1.21 million units, while new home inventory reached its highest level since January 2008.

Homebuilder Confidence and Construction Trends

In May, homebuilder confidence took a hit, declining by 6 points to 45 on the National Association of Home Builders’ Housing Market Index. This score, falling below the threshold of 50, suggests poor building conditions for the next six months, primarily driven by higher mortgage rates. However, the housing construction sector did show some positive signs in April. According to the U.S. Census Bureau, new residential construction increased by 5.7% month-over-month. While single-family starts fell by 0.4%, multifamily starts surged by an impressive 31%.

House Price Trends

The March FHFA Purchase-Only Home Price Index saw a modest increase of 0.1% month-over-month, compared to a 1.2% rise in February. Year-over-year house price growth remained robust at 6.7% for March. Vermont led the states with the highest annual house price appreciation at 12.8%, followed by New Jersey at 11.6% and New York at 10.9%. The continued rise in house prices is mainly driven by the low inventory of homes available for sale and steady demand, which keeps pushing prices upward.

Mortgage Rates and Market Demand

Mortgage rates have shown volatility over the past month, fluctuating between 6.9% and 7.2%. These relatively high rates have discouraged home sales. Despite strong demand from first-time homebuyers, home sales are expected to remain subdued. The current demand is largely concentrated in the entry-level segment of the market, where supply is limited due to restricted construction.

Trade-up buyers are scarce, as they are reluctant to exchange their low-rate mortgages for higher rates on new homes. However, persistent demand coupled with tight supply is likely to continue driving up home prices, potentially leading to further increases in 2024 and 2025.

Mortgage Origination Forecast

Freddie Mac’s projection for mortgage origination depends on several factors, including home prices, home sales, and the cash share of purchases. With an expected moderation in home sales, high prices, and a stable cash share of purchases, Freddie Mac anticipates purchase origination to be slightly higher in 2024 than in 2023.

Refinance activity is expected to remain minimal as long as mortgage rates stay above 7%. However, if rates drop below 6.5%, there could be an uptick in refinance activity, given that millions of borrowers currently hold rates above this level.

Despite this, persistent inflation makes it challenging to achieve rates below 6.5%. Freddie Mac’s forecast suggests a modest increase in total origination volumes this year and next, primarily driven by rising home prices.

In summary, the U.S. housing market faces a complex landscape with fluctuating mortgage rates, persistent demand, and limited supply contributing to ongoing price increases. While homebuilder confidence has declined, there are still positive signs in the construction sector. The overall outlook suggests moderate growth in mortgage origination, driven by high home prices and steady demand, even as refinance activity remains low due to high interest rates.


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