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After peaking last fall, mortgage interest rates have fallen at the start of 2019. As of the week of February 14, 2019, the 30-year fixed-rate mortgage rate was down from a year ago. The decline in mortgage interest rates could provide some welcome relief to a housing market that is looking to regain momentum. We forecast that the U.S. economy will continue to grow, albeit at a slower rate, and that the housing market will bounce back, posting modest growth in 2019.
The U.S. labor market continues to hold strong despite uncertainty in other areas of the economy. Job openings have continued to increase faster than hiring. Moreover, the number of employees that quit at the end of 2018 has increased, which indicates confidence in the labor market. After reaching its highest level in a year and a half at 253,000 at the end of January, jobless claims eased to 239,000 in the second week of February, mainly due to the end of the partial government shutdown. We forecast unemployment to drop slightly to 3.6 percent in 2019 before returning to a more sustainable long-term rate of 3.9 percent in 2020.
After averaging 4.6 percent in 2018, the 30-year fixed-rate mortgage has been steadily decreasing since the beginning of 2019. Moreover, the 30-year fixed-rate mortgage reached its 12-month low of 4.4 percent in mid-February. We forecast the 30-year fixed-rate mortgage to average 4.6 percent in 2019 before increasing to 4.9 percent in 2020.
Housing starts averaged 1.26 million in 2018. We have begun breaking out our housing starts forecast into single-family and multifamily units. We anticipate that total housing starts will gradually recover over the next two years with both single-family and multifamily units increasing each year. We forecast that total housing starts will increase to 1.29 million units in 2019 and further to 1.36 million units in 2020. While this is well below what we think the economy needs to match long-run demand, a lack of labor and other factors previously discussed in our December 2018 Insight will constrain the recovery in housing construction.
Due to lower mortgage rates, we expect total home sales to slowly regain momentum, increasing to 6.10 million in 2019 and to 6.12 million in 2020. For 2019, we expect home sales growth to be mostly driven by existing home sales, while new home sales are expected to remain at their current level.
After accelerating in recent years, home price growth has finally begun to cool. The growth rate of the Freddie Mac House Price Index fell slightly to 0.7 percent in the fourth quarter of 2018. We forecast that home prices will increase 4.1 percent and 2.8 percent in 2019 and 2020, respectively. This moderation in house price growth along with an increase in household income will help bring house prices back in line with long-term fundamentals.
We expect single-family mortgage originations to increase 2.6 percent to $1.69 trillion in 2019 and remain around that level in 2020. With mortgage rates easing since the end of 2018, we revised up the refinance share of originations to 27 percent and 24 percent in 2019 and 2020, respectively.
PREPARED BY THE ECONOMIC & HOUSING RESEARCH GROUP
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