Freddie Forecasts Strong Market With Gradually Increasing Mortgage Rates
Written By: Joel Palmer, Op-Ed Writer
Freddie Mac economists predict the housing and mortgage markets will remain strong for the remainder of the year, though there are indicators that the lack of housing inventory is starting to “exhaust” potential homebuyers.
Freddie Mac’s latest quarterly forecast, releases last week, stated the the low mortgage rates that have supported the housing market throughout the pandemic should increase later this year. However, the increase will be gradual, which means the market should remain strong, Freddie said.
“As the economy continues to mend, the housing market remains strong even as certain obstacles have begun to slow sales across the country,” said Sam Khater, Freddie Mac’s chief economist. “Of note, high house price growth has been buoyed by increased demand due to low mortgage rates, disposable after-tax income that has risen during the current recession and a major shortage of housing supply relative to our population.”
Freddie forecasts 30-year rates to be around 3.4 percent around the end of 2021. They expect rates to rise to 3.8 percent by the fourth quarter of 2022.
The bigger potential concern for mortgage lenders is the continuing increase in home prices caused by the ongoing lack of inventory. House price growth is expected to be 12.1 percent in 2021. Growth was 11.3 percent in 2020.
“The rapid run up in house prices may be starting to exhaust potential homebuyers,” Freddie wrote in its report. “We've seen indications of softening demand in recent home purchase mortgage applications data. And, while sales metrics remain above pre-pandemic levels, the pace of sales has cooled since the first quarter of this year with home sales slowing for the past four consecutive months.”
Additional forecast duty in the report included:
Home sales are expected to reach 6.9 million in 2021, up from 6.5 million in 2020, then remaining flat in 2022.
Purchase originations are expected to increase from $1.5 trillion last year to $1.8 trillion in 2021 and $1.9 trillion in 2022.
Refinance originations are expected to soften, declining from $2.2 trillion in 2021 to $713 billion in 2022. This is down from $2.6 trillion in 2020.
Overall, annual mortgage origination levels are expected to be $3.9 trillion in 2021 and $2.6 trillion 2022. These levels were $4.1 trillion in 2020.
Something that could help support the refinance market is last week’s elimination of the Adverse Market Refinance Fee. The Federal Housing Finance Agency (FHFA) said the 50-basis point fee will be eliminated for loan deliveries effective August 1.
The fee was charged to lenders when the delivered refinanced mortgage loans to the Government Sponsored Enterprises. It was instituted at the beginning of the COVID-19 pandemic in 2020 to cover projected losses.
FHFA said that “the success of FHFA and the Enterprises' COVID-19 policies reduced the impact of the pandemic and were effective enough to warrant an early conclusion of the Adverse Market Refinance Fee. FHFA's expectation is that those lenders who were charging borrowers the fee will pass cost savings back to borrowers.”
"The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money," said FHFA Acting Director Sandra L. Thompson.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
