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Outlook | June 23, 2017

Housing Remains a Bright Spot for Economy

The economic picture remains much the same as in recent years. After revisions to consumer spending, real gross domestic product (GDP) growth in the first quarter of 2017 was 1.2 percent. Inflation remains tepid. The Consumer Price Index (CPI) rose 0.2 percent in April. Core CPI rose just 0.1 percent. The labor market maintained its momentum. May marked the 80th consecutive month of job gains. The unemployment rate dropped another 0.1 percentage points to 4.3 percent. Weak growth, moderate inflation and a labor market at full employment are likely to persist.

Housing remains a bright spot. Year-to-date total home sales and housing construction are the highest in years. But housing data weakened this past month. Housing starts fell 2.6 percent in April. Permits for single-family homes also declined. After a strong March, home sales took a hit in April as well. New home sales fell 11.4 percent and existing home sales fell 2.3 percent. The recent declines are likely to reverse as low mortgage interest rates and solid job gains boost the housing market. We expect housing starts and home sales to firm in the coming months and for 2017 to exceed 2016's best-in-a-decade levels.

Rates remain higher than 2016

Mortgage rates have been on the decline. As of June 22, 2017, the U.S. weekly average 30-year fixed mortgage rate was 3.90 percent, 30 basis points lower than at the start of 2017. Lower mortgage rates help support refinance activity. However, today's mortgage rate is still almost 50 basis points higher than last year's low. In 2016, mortgage rates fell below 3.5 percent for 16 weeks and below 3.7 percent for 37 weeks. Unless rates fall below 3.5 percent this year and stay there for an extended period, refinance volume will fall short of last year’s levels. And we don't expect mortgage rates to fall that much. Thus, we forecast mortgage origination volume will decline $370 billion in 2017.

Thinking of buying a home?

June is National Homeownership Month, a time to reflect on the many benefits of owning a home. Owning a home is a key to wealth accumulation: Home owners build equity through paying down principal and home price appreciation. Tax benefits magnify the financial benefits of increasing home equity.

Prior to the Great Recession, homeownership rose to an all-time high of 69.2 percent of households. During the recession, many people lost their homes through foreclosures, and homeownership rates in the U.S. dipped to a 50-year low. In the first quarter of 2017, the rate was 63.6 percent – six-percentage points lower than its peak in 2004.

So, where is homeownership headed from here?  Here are a few of the factors that have caught our attention.

  • Why are the Experts Pessimistic About the Future of Homeownership? Some experts expect the homeownership rate to continue to decline in the future.  These experts point to the rising share of racial and ethnic minorities in the population, groups whose homeownership rates historically lag behind the national average. Last Fall, we explained how the experts form their projections, and why they might be overly pessimistic.
  • Will the Hispanic Homeownership Gap Persist?  The Hispanic homeownership rate has been increasing in recent years and has been gaining ground on the rate among non-Hispanic whites. In our upcoming June Insight, we discuss how the increasing average age of resident Hispanics and the changing share of new immigrants is likely to impact Hispanic homeownership rates in the future.
  • Student Loans and Homeownership. Many housing analysts believe the explosive growth of student debt is preventing some Millennials from buying their first homes. In 2015, we reviewed evidence that highlights which student loans were good investments in a future career and which piled up debt that will be hard to repay.  
  • Where do the Service Workers In San Francisco Live? Rapid increases in house prices in the last few years have made homeownership more challenging for first-time buyers. In April, we analyzed how the overall cost of living in the San Francisco area is roughly 50 percent higher than the national average and how even higher-income families are affected.
  • Three Trends That Are Shaping the Future of Housing. Most commentary on housing focuses on the short-term – this month's housing starts and this quarter's house price inflation. But some of the most profound influences on housing have been developing for decades. Increasing income inequality, the increasing share of land costs in housing prices, and increasing land use restrictions are three trends that are shaping the future of housing.

To cap off these discussions, our soon-to-be published article, "If housing is so affordable, why doesn't it feel that way?" takes on all these issues at once to assess the real barriers to homeownership today.


Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Economic & Housing Research group, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Economic & Housing Research group attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. The information is therefore provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document is strictly prohibited. ©2017 by Freddie Mac.

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