Freddie Mac: 2015 Holds a Brighter Future for the Mortgage Market
Nov 19th, 2014 @ 9:04 PM by Amber Nelson
The U.S. housing market will see improvements in home sales and starts in 2015 even as interest rates rise and refinancing falls off a cliff, according to mortgage finance giant Freddie Mac.
Freddie Mac’s chief economist Frank Nothaft wrote in an “Executive Perspectives” forecast that he foresees a rosier picture for the housing and mortgage markets next year based on predictions that the overall economy will sustain a 3.0 percent growth rate, an impressive pace compared with most of the last decade. And while an improved economy will likely mean rising rates from the Federal Reserve, Nothaft said that “, income and job growth [will] offset the negative effect of higher interest rates and translate into gains for the nation’s housing market.” Here’s how the housing market will benefit:
Freddie Mac predicts that builder will increase housing starts by 20 percent in 2015. That increase in inventory will also boost sales which are expected to rise by 5 percent next year. Growing sales will mean more mortgage originations, which will likely make up roughly 75 percent to 80 percent of all mortgage activity next year, according to Nothaft.
Home prices will continue to rise – good news for homeowners – albeit at a much slower rate than in the past two years. Freddie Mac projects that home price appreciation will fall to 4.5 percent this year, down from 9.3 percent in 2013, and that prices will only gain 3 percent in 2015. Even that smaller increase in value could make home-buying less affordable for some regions, especially where incomes do not see a similar growth rate.
Mortgage interest rates are highly likely to rise next year. The average rate on a 30-year fixed rate conventional mortgage started this year around 4.5 percent and has fallen to 4.0 percent as of November, but as the economy picks up, Freddie Mac sees the average rate climbing back up to 4.6 percent in 2015. That’s still a very low average, historically speaking and should keep affordability within reach for many buyers.
Refinance requests will likely plunge in 2015 however as a result of rising interest rates. Freddie Mac says that the average interest rate on outstanding mortgage debt is currently around 3.9 percent, so it will refinancing will no longer make sense for most homeowners in the new year.
Overall, Freddie Mac’s forecast paints a picture of a more stable and sustainable U.S housing market by the close of 2015.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.