The ‘Trifecta’ Holding Up Home Shoppers

May 29, 2018

Home sales are still on track to eke out a gain in 2018, but buyers are encountering three big obstacles as they shop: Swift price growth, climbing mortgage rates, and low supply of homes for sale. 

Freddie Mac researchers are calling it a “trifecta” of challenges for home buyers in the first five months of 2018. Nevertheless, researchers say they expect the healthy economy and strong consumer confidence to lead to a 3 percent increase in total home sales (new and existing) for this year, according to the company’s May Outlook report. 

“While this spring’s sudden rise in mortgage rates is taking up a good chunk of the conversation, it’s the stubbornly low inventory levels in much of the country that are preventing sales from really taking off like they should,” says Sam Khater, Freddie Mac’s chief economist. “The underlying demand for buying a home is holding up, and will continue to do so, as long as the economy is generating solid job and income growth. Most markets simply need a lot more new and existing supply to cool price growth and give buyers enough choices.” 

A few highlights from Freddie Mac’s May Outlook: 

  • The rise in interest rates likely will continue this year. The 30-year fixed-rate mortgage is forecast to average 4.9 percent by the end of the year. 
  • Low inventories of homes for sale are slowing sales growth and putting upward pressure on price appreciation, Freddie Mac economists note. Freddie economists predict that total home sales this year will increase 3.3 percent year-over-year to 6.32 million. 
  • Even as mortgage rates continue to rise, home prices likely will too. Freddie forecasters predict that home prices will increase 7 percent this year. 

A snapshot of Freddie Mac’s May Outlook