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.