Weakening affordability and inventory issues are expected to pressure sales through 2018
Mortgage originations are forecast to decline this year despite a healthy economy and labor market, according to the August Forecast released by Freddie Mac.
Originations of single-family first-lien mortgages are predicted to slide around 8% to $1.66 trillion amid a slowdown in home sales growth and lower refinance volume due to higher mortgage rates.
Total sales of new and existing homes are expected to increase only modestly by 0.2% to 6.14 million as supply and demand imbalances continue. The limited inventory is also expected to moderate prices, but still at a pace well above inflation at 6%.
Additionally, mortgage rates are forecast to gradually trend higher after remaining mostly flat since late May. After jumping earlier in 2018, Freddie Mac now expects rates to average 4.6% in 2018.
“The housing market hit some speed bumps this summer, with many prospective homebuyers slowed by not enough moderately-priced homes for sale and higher home prices and mortgage rates,” Freddie Mac Chief Economist Sam Khater said. “These challenges were predominantly seen in expensive markets out West, where demand and sales are beginning to dampen because of weakening affordability.”
Freddie Mac noted although the US economy grew during the second quarter at its fastest pace in nearly four years, it had little to do with housing activity. The quarter saw weaker new-home construction, existing-home sales, new-home sales given homebuilder challenges, limited inventory, and steady price gains.
“The good news is that the economy and labor market are very healthy right now, and mortgage rates, after surging earlier this year, have stabilized in recent months,” Khater said. “These factors should continue to create solid buyer demand, and ultimately an uptick in sales, in most parts of the country in the months ahead.”
