November 19, 2014

Freddie Mac’s Analysts Expect Continued Housing Market Improvement As Economy Grows Stronger In 2015

freddie Mac’s Analysts Expect Continued Housing Market Improvement As Economy Grows Stronger In 2015

In just a few weeks, 2014 will be ending and a lot have been wondering as to where the economy is going next year including Freddie Mac’s chief economist and deputy chief economist Frank Nothaft and Len Kiefer.

According to the company’s latest Economic and Housing Market Outlook for the United States, both analysts claim that the market for home purchase mortgages will continue to strengthen especially as the country’s economy improves. This year was certainly a mixed year for the housing market compared to 2013.

The economists foresee a growth rate of 3 percent for the gross domestic product (GDP) in 2015, which marks the second time within the past decade that the GDP has increased 3 percent or higher.

Apart from this, Nothaft and Kiefer have 4 other predictions for the following year:

  1. Mortgage interest rates will continue to climb. Mortgage interest rates this year has been fluctuating starting at 4.53 percent, down 4 percent in the opening months before rising again in the summer and declining again. The average 30-year fixed rate is predicted to gradually increase through the year, probably ending about 5 percent with the yields on the 10-year Treasury expected to average 2.9 percentage points in 2015.
  2. Growth of home prices will become slower. Though home prices will certainly continue to rise, the pacing will just be moderate. Freddie Mac currently expects for prices to increase by 3.0 percent in 2015.
  3. Home sales and construction will start to increase. Home sales and new home constructions have been a disappointment last year but these are expected to improve next year. Freddie Mac foresees the total housing starts to rise by 20 percent from 2014 to 2015, with single-family homes comprising the largest share of the market. Total homes sales are also predicted to rise by around 5 percent over the year, which will mark as the best sales pace within the last eight years.
  4. Home purchase mortgages will increase its share however total originations will drop. In 2015, refinance originations are expected to account only for 23 percent of the loan volumes while purchase lending is predicted to fall short of filling that gap, causing an annual drop in originations of 8 percent annual drop to $1.1 trillion.

“Government fiscal drag has turned into fiscal stimulus, lower energy costs support consumer spending and business investment, further easing of credit conditions for business and real estate lending support commerce and development, and more upbeat consumer and business confidence, all of which portend faster economic growth in 2015. And with that, the economy will produce more and better paying jobs, providing the financial wherewithal to support household formations and housing activity,” Nothaft said regarding the forecast.

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