Freddie Still Bullish on New-Home Sales

March 5, 2018

New-home sales may have started 2018 by softening, but that hasn’t made Freddie Mac economists lose their optimism that the sector will be key to driving the housing market in 2018. New-home sales plunged 7.8 percent in January month over month, but economists remain hopeful.

“While existing home sales may struggle to top their best-in-over-a-decade 2017 performance, new home sales should provide enough growth to push total home sales in the U.S. modestly higher in 2018,” says Len Kiefer, Freddie Mac’s deputy chief economist. “Housing construction continues to lag demand by a wide margin, so we expect to see housing starts grind higher in 2018.”

Freddie Mac economists also predict that tax reform recently enacted will have a limited influence on national home prices. Certain markets with higher average incomes and those with higher property tax rates may see an impact on home prices ranging up to 2 percentage points, Freddie Mac predicts.

Instead, economists predict the highest impact on home prices will come from rising mortgage rates. Freddie Mac has revised its forecasts on mortgage rates since its January Outlook. It now predicts the 30-year fixed-rate mortgage to average 4.6 percent for 2018, up from its 4.5 percent forecast in January.

Home prices are expected to continue to increase too. The most recent release of the Freddie Mac House Price Index shows U.S. house prices increased 7.1 percent from December 2016 and December 2017.

“With construction ramping up slowly to meet demand, house prices should continue to increase, though the pace of growth may moderate as higher interest rates pinch affordability and the tax bill shifts the balance between buy and rent,” says Kiefer.

Freddie Mac estimates that about $14.8 billion in net home equity was cashed out during the fourth quarter for the refinance of conventional prime-credit mortgages (adjusted for inflation in 2017 dollars). That does represent a decrease from $19 billion the year prior.

Source: “Will the New Tax Bill Dampen the Industry?” Freddie Mac Outlook (Feb. 27, 2018) and “Freddie Mac Still Predicts New Home Sales to Drive 2018 Growth,” HousingWire (Feb. 28,2 018)