Freddie Mac’s Mortgage & Real Estate Forecast For 2018

Freddie Mac’s 2018 mortgage and real estate outlook is out. Here’s what the finance giant expects in 2018…

Being one of the largest and most influential finance institutions in the country, Freddie Mac knows a thing or two about the data. They also have substantial capability to impact the direction of the real estate and mortgage market. Check out the government sponsored agency’s forecast for the next twelve months below.

Mortgage Rates

New average 30 year fixed mortgage rates are expected to keep nudging up. There could be 3 new Fed rate hikes this year, and more in 2019. Freddie Mac expects this to result in average rates of around 4.4% this year. Still very low, but moving up. Real estate investors should expect to pay more than regular owner occupant home buyers. Overall lender fees and borrowing costs may also rise due to inflation as well.

Record Number of Home Sales

Freddie Mac says that we’ve set a new record for home sales volume. Higher than in 2007. This may be in part due to investment activity and house flipping, but also due to a growing and maturing population, changing housing needs, and new development. Freddie expects home sales volume to be even higher in 2018, at 6.3 million units for the year. Housing inventory shortages have been a challenge over the last year. That may continue, though could be alleviated by new construction coming online, more foreclosures and shadow REO inventory being released by banks, rehabbers recycling distressed properties, and a growing number of movers. A recent Trulia survey shows that over 30% of homeowners believe this is a better year to sell their properties. More may become motivated sellers due to new mortgage interest deduction and property tax deduction limitations.

House Price Appreciation

Virtually all analysts, including Freddie Mac’s appear to be confident that the national housing market will keep moving in a positive direction this year. Growth may be slightly moderated compared to the last few years, but still headed upwards. Freddie Mac expects home price growth to slow to 4.9% from 6.3% in 2017. Obviously, all real estate remains local. That means some sizzling markets of 2016 may see some correction, though others will see double digit gains.

Mortgage Loan Volumes

Freddie Mac expects a further decline in mortgage loan dollar volume in 2018, to just $1,695,000,000,000. That is largely due to decreases in refinancing activity, and uncertainty that the Dodd-Frank Act will be able to be eliminated.

Purchase mortgage volumes should increase thanks to more home purchases and higher house prices. As well as the fact that many are finally seeing their credit rebound from the Great Recession. However, the share of refinances could dip to just 25% of all new single family loan originations; the lowest since 1995. That’s mostly due to rising interest rates.

The lack of new loans being made at high rates could also be great for private mortgage lenders. Those who hold and generate higher rate notes could find them even more in demand, and see their net profits rise, as discounts tighten.

The biggest shift in 2018 is most likely to come from the home equity loan and HELOC sector. Total US home value could hit a new high, close to $23T this year. Freddie Mac puts the amount of positive equity near record highs as well, at around $13.7T. TransUnion and MarketWatch believe 67% of US homeowners have enough equity to get a home equity loan this year, with 80% of them having good credit. That could do a lot to fuel the economy with spending, as well as helping many to find extra cash to invest in real estate. Just remember that when 2008 hit, banks froze and locked many lines of credit, leaving homeowners and investors without access to credit they thought they had.

Other Factors Impacting the Market in 2018

New mortgage lender programs, interest only loans, low down payment options, and alternative income documentation loans could help fuel the real estate market this year. Even more so if some provisions of Dodd-Frank are rolled back, or are not enforced.

Lender automation could help as well. All real estate businesses need to automate, and it will be a differentiating factor in who emerges as the biggest winners. How easy this makes it for home sellers, buyers, and investors will still depend on how efficient and friendly these automations and systems are.

The one detractor may be wire fraud which has been hitting the real estate industry hard. The FBI reports wire fraud complaints rose 480% in 2016 alone, and appears to be a growing problem. Always double verify before sending any money, and warn other parties to your transactions to do the same.

Finally, the impact of the new tax reform bill may motivate more owners to sell and relocate or downsize to avoid higher annual tax bills. This could create more sales activity, but may alter where the most action and growth is.

About the Author

Kent Clothier is President and CEO of Real Estate Worldwide (REWW), a multi-faceted real estate education company with headquarters in Scottsdale, Arizona, San Diego, California, and Boca Raton, Florida.

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