Freddie Mac’s monthly outlook for October found overall mortgage activity benefited greatly from low mortgage rates post-Brexit, but the recent slowdown in refinance activity likely will persist into next 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,” Freddie Mac Chief Economist Sean Becketti said in a news release. “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.
“The economy and labor markets are looking better,” he added in the release. “We’re even seeing modest wage gains. And Fed watchers are increasingly predicting a December rate hike as things improve. However, worldwide economic growth is weak and its prospects have gotten worse.”
Other highlights of the Freddie Mac report include:
• Continued strength in consumer spending and a reduction in the drag from inventory spending should boost second half growth, resulting in full-year 2016 GDP growth of 1.6%. Slightly better growth of 1.9% is expected in 2017.
• The unemployment rate to is expected to decline slightly over the next year-and-a-half, ending 2017 at 4.7%.
• Mortgage interest rates likely will remain low for an extended period. A gradual rise in rates is expected through the remainder of 2016 and into 2017, with the 30-year fixed-rate mortgage averaging 3.9% in the fourth quarter of 2017.
• Rising new home sales driven by increases in new single-family housing construction will push total home sales slightly higher to 6.16 million in 2017 compared with 6.04 million in 2016.
• Total mortgage originations are expected to fall about 18% from 2016 to 2017. A projected decline in refinancing activity in 2017 will be partially offset by an increase in new home purchases and home improvement mortgage activity.
• House prices are projected to grow at a 5.6% annual rate in 2016, moderating to 4.7% in 2017.
To read more about the report, click here.