Uncertainty could impact housing market in 2017: Freddie Mac

Uncertainty weighs on the housing market in 2017 after the best year in a decade, according to a new report by Freddie Mac.

Rising mortgage interest rates, uncertainty about the impact of the Trump administration’s tax and fiscal policies and rising home prices are some of the factors creating uncertainty in the economy and housing market, according to Freddie Mac’s monthly Outlook for January 2017.

“The U.S. economy is now in its eighth year of expansion and the housing market is coming off its best year in a decade. Prospects remain good for future growth,” Sean Becketti, chief economist for Freddie Mac, said in a Jan. 30 news release about the report.

“However, uncertainty weighs on our outlook for 2017 and 2018,” Becketti added in the release. “We must grapple with uncertainty about fiscal policy, foreign investments in U.S. real estate and the size of the mortgage market. Among the many uncertainties we highlighted, however, a smaller mortgage market in 2017 than 2016 seems most certain.”

According to the release, major findings of the report include:

• An expansionary fiscal policy is expected to boost both growth and inflation over the next two years and corporate tax reform will increase long-run potential economic growth by about two-tenths of a percentage point.

• The new presidential administration’s tax proposals include increasing the standard deduction and flattening marginal personal income tax rates. “Increasing the standard deduction will reduce the number of households who find it advantageous to itemize deductions,” the report stated. “This will reduce the homeownership incentive that comes from the mortgage interest deduction.”

• The recent appreciation of the dollar has made U.S. real estate more expensive to many international buyers, creating uncertainty about future foreign investment in the U.S. real estate market.

• Mortgage rates are expected to rise throughout 2017, dampening housing and mortgage market activity. Freddie Mac expects mortgage origination volumes to decline in 2017 relative to 2016 and origination volume to stabilize at a lower level in 2018. “The decline in overall mortgage activity will be driven by a sharp reduction in refinance activity, which we forecast to fall more than 50% from about $1 trillion in 2016 to about $425 billion in 2017, the report stated.

• Because of housing price appreciation, home equity in the U.S. has increased to about $13 trillion through the third quarter of 2016, rising from about $7 trillion in the second quarter of 2011.

To read the full report, click here.