“The economy and labor markets are looking better. We're even seeing modest wage gains. And Fed watchers are increasingly predicting a December rate hike as things improve,” said Sean Becketti, Freddie Mac chief economist. “However, worldwide economic growth is weak and its prospects have gotten worse. This may all sound familiar because we've been here before... last year.
“As the economy sputters along a little bit faster than stall speed, the U.S. housing market continues to be a bright spot, though there's less room to run than in the prior few years,” Becketti added. “Unlike new home sales, existing home sales have nearly recovered back to pre-recession norms. Regardless, we see new home sales improving some next year driven by increases in new single-family housing construction which will push total home sales slightly higher.”
Among the highlights of the October Outlook report:
- Mortgage rates are likely to remain low for an extended period, even if worldwide bond yields recover to pre-Brexit levels. Freddie expects a gradual rise in rates through the rest of the year and into 2017, with the 30-year fixed-rate mortgage averaging 3.9% in the fourth quarter of next year.
- Total home sales are expected to see a slight decline in the fourth quarter, with only a slight increase in 2017, with a projected total of 6.16 million compared to 2016’s estimated total of 6.04 million.
- Freddie Mac forecasts home prices will grow at a 5.6% annual rate in 2016, slowing to 4.7% next year.
- Continued strength in consumer spending, along with reduced drag from inventory spending, should boost growth in the second half, resulting in full-year GDP growth of 1.6% for 2016. Freddie Mac expects the economy to do modestly better in 2017, with 1.9% year-over-year growth.
- The unemployment rate is expected to decline over the next year and a half, ending 2017 at 4.7%.
Housing remains one of the bright spots in a slowly improving economy, according to Freddie Mac’s monthly Outlook report. However, mortgage activity – which has seen benefits from low post-Brexit rates – is starting to see a slowdown in refinances. That slowdown is expected to persist into 2017 as the mortgage market transitions to a purchase-dominated mix, according to Freddie Mac. Freddie also expects home price gains to slow next year.