Freddie Downgrades Economic Forecast but Bullish on Housing

Like virtually all the experts,
including those at the Federal Reserve, Freddie Mac’s economists have reduced
their expectations for economic growth

The company’s March forecast is for growth in the first quarter of 2019
to shrink to 1.2 percent.  They do see it
regaining its footing later in the year, but it will still decelerate from 2018
to 2.0 percent this year and 1.8 percent in 2020.  They blame the first quarter retrenchment on
a decline in residential fixed investment, consumer spending, and the effects
of the partial government shutdown
in January.

The economists see a brighter
picture for the real estate market
, with the significant decline in mortgage
rates since last fall being one of the main drivers of improvement. The
forecast is for existing home sales to bounce back and trend higher for the
rest of the year, reaching 5.94 million this year and increasing to 6.14
million in 2020.  Friday’s report on
existing homes sales from the National Association of Realtors was a good down
payment on that prediction.  The more
than 11 percent surge compared to January brought the annual rate of sales to
5.51 million units in February.

Recent increases in building permits
point to a gradual uptick in housing starts over the next two years with most
of the growth coming from single-family housing starts. Total housing starts
are expected to increase to 1.27 million units in 2019 and to 1.33 million
units in 2020.

The 30-year fixed-rate mortgage rate
is expected to change little
over the course of the year, averaging 4.5 percent
then increasing to 4.8 percent in 2020

Single-family mortgage originations are expected to increase by 1.6
percent to $1.67 trillion in 2019 and remain at a similar level in 2020.  Price growth expectations have been lowered
to increases of 3.5 percent this year and 2.5 percent next year.

Sam Khater, Freddie Mac’s chief
economist, says, “The real estate market is thawing in response to the
sustained decline in mortgage rates and rebound in consumer confidence – two of
the most important drivers of home sales. Rising sales demand coupled with more
inventory than previous spring seasons suggests that the housing market is in
the early stages of regaining momentum.”

The company also anticipates that
the growing chasm between job openings and available labor, as well as the slow
increase in nonfarm payroll will cause unemployment to dip to 3.8 percent in
2019 and rise only slightly next year.

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