Taper will cause gradual rise in rates throughout 2014 – Freddie Mac

by Ryan Smith19 Jun 2014
Freddie Mac is predicting a gradual rise in fixed mortgage rates in response to the Federal Reserve’s continuing reduction in its bond buys. The 30-year fixed-rate mortgage is expected to end the year around 4.4%.

In its U.S. Economic and Housing Market Outlook for June, Freddie also predicts that low for-sale inventory will sustain home prices and rent gains this year – but at the expense of short term affordability.

Home purchase applications are also still low – 13% below last year – despite a recent pickup. Freddie lowered its overall home sales forecast for the year from 5.5 million to 5.4 million.

 “We're nearly half way through the year and single-family housing remains weaker than we projected six months ago, while multifamily appears to be right on track,” said Frank Nothaft, Freddie Mac vice president and chief economist. “With vacancy rates moving back in line with historical averages, even falling below historical averages in some markets, and for-sale inventories remaining tight, U.S. home price indexes are likely to continue their above-inflation growth for the remainder of the year, as will rent gains, albeit much slower than in 2013. The important question is how much further will prices and rents have to rise to give incentives for more existing owners to list their property for sale and developers bring more supply to the market. Construction has rebounded over the past two years but is still significantly below the levels one would expect to see given projections of household formations.”
 

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