Although the housing market continues to show strength,
Freddie Mac economists say there are increasingly troubling signs in the larger
economy. The third quarter forecast from the company’s Economic and Housing
Research Group notes an apparent stall in economic activity in early July. Even
as many businesses reopened, unemployment claims continued at elevated levels, (and
posted its largest one-week increase in three months last week). In mid-September
claims totaled about 26 million. Although
the unemployment rate declined to 7.9 percent in September, Freddie Mac says a
shift from temporary to permanent unemployment and a deterioration in labor
force participation signals an underlaying labor market weakness.
But then there is the housing market. One of the main
drivers of the quick recovery from the March/April downturn is the historically
low interest rates which hit an all-time low of 2.86 percent in mid-September
(and was at 2.81 percent today.) The economists forecast they will remain flat
at around 3.0 percent until the end of 2021. Total mortgage origination volumes
increased as many homeowners took advantage of historically low mortgage rates.
The main driver was a surge in refinance originations.
Total home sales, including both new and existing units, saw a sizeable
increase. New home sales surpassed an annualized 1 million units in August, the
highest rate since the second quarter of 2006. Existing home sales reached a 6
million unit rate the same month. The economists expect that surge to help
propel total annual sales to 6.2 million in 2020. The temporary slowdown in
homebuilding in the spring and early summer will translate to fewer new homes
for sale next year so home sales are expected to decline to 6.1 million during
Rising sales have further depressed housing inventory, it was down 18.6
percent month-over-month in August, resulting in an acceleration in house price
growth this summer. The forecast now is for home prices to gain 2.4 percent in
the third quarter and 5.5 percent for the calendar year. Freddie Mac expects growth
to moderate to 2.6 percent next year.
Mortgage originations will reach $1.1 trillion in Q3 2020 and $3.6 trillion
for full year 2020. For Q3 2020, purchase originations will be around $444
billion and refinance originations will be $670 billion. For the full year purchase
originations and mortgage refinance originations are expected to total $1.4 and
$2.2 trillion, respectively. Purchase originations will remain at $1.4 trillion
next year, while refinance originations are expected to be lower at $1.2
trillion. Total originations will decline to $2.7 trillion in 2021.