Freddie Mac’s most recent quarterly forecast report acknowledges the recent strides toward a housing market rebound, but remains cautious regarding the uncertain nature of the economy’s long-term outlook.
The forecast, released on Tuesday by the government-sponsored enterprise, calls for mortgage rates to continue dropping, home price growth to soften and home sales to fall, although Freddie sees a rebound in the latter before too long.
Sam Khater, Freddie’s chief economist, said that forward progress will continue to hinge on new developments on the coronavirus front.
“While the housing market undoubtedly has felt the effects of COVID-19, we are encouraged by recent homebuyer demand, as well as mortgage rates that should remain at record lows for the foreseeable future.” Khater said. “However, beyond the initial rebound in the housing market, the economic and housing outlook will be heavily impacted by the prospects for a vaccine, fiscal policy and the underlying organic recovery of the economy which, in combination, make the outlook highly uncertain.”
Freddie Mac looks for the 30-year fixed mortgage rate to decline to a yearly average of 3.4% in 2020 — down from 4.0% in 2019 — before ebbing again to 3.2% the following year. The low rate environment will likely keep refinance originations at high levels throughout 2020, much as it did through the year’s first half. As such, refi originations are projected to reach $1.872 trillion in 2020 before decreasing to $1.279 trillion in 2021.
Freddie’s forecast recognized that the housing market is “clearly rebounding faster than expected” and that stimulus measures by the Federal Reserve and federal government have “cushioned the economic impact of the pandemic on consumer balance sheets in the short-term.” The bounce-back in purchase application data from mid-April to mid-June, per Freddie, has been “remarkable”; consider that it took over 10 years for purchase demand to return to normal after the Great Recession. During the coronavirus crisis, it took less than 10 weeks.
The immediate recovery in purchase demand, Freddie noted, may reflect deferred sales and “perhaps pulled some demand forward,” with prospective buyers who haven’t been impacted by the downturn emerging to take advantage of low rates. Long-term effects of the job market’s unprecedented corrosion, however, have yet to be made clear, despite the strong May employment rebound. Job numbers remain 20 million below February figures, and could be even further behind given “misclassification errors” in recent job reports acknowledged by the Bureau of Labor Statistics. Those figures will take an extended period of time to truly recover, especially with supplemental help from the government due to lapse at the end of the summer.
Due to those ongoing impacts, as well as the truncated buying season due to COVID-19 social distancing measures, Freddie expects home sales to decrease to 4.8 million in 2020, down from 6.0 million last year. While Freddie sees a rebound to home sales of 5.6 million in 2021, that forecast still remains below 2019’s sales rate. Purchase originations are expected to fall due to the home sales decline, hitting $1.044 trillion in 2020 before growing to $1.279 trillion in 2021.
Total originations are projected at $2.916 trillion for 2020, still above 2019’s volume of $2.325 trillion. With refi originations anticipated to drop the next year and the growth in purchases not offsetting the decrease, that total figure is expected to fall back to $2.524 trillion in 2021.
Home price growth is expected to decelerate to an annual rate of 2.3% this year, further slowing to 0.4% in 2021.