Freddie Mac released its monthly Outlook for April showing that although recent data darkened the growth outlook for the first quarter, housing is expected to maintain its momentum in 2016 and be an economic engine of growth. Recent declines in mortgage rates also have boosted refinance potential.
Based on new data, first quarter 2016 real GDP growth has been revised down from 1.8 to 1.1 percent. Freddie Mac said to expect the labor market to sustain its momentum and the unemployment rate to drop back below 5 percent for2016 and 2017. Stronger economic growth for the remainder of 2016 and reduced slack in the labor market will drive wage gains above inflation, though the gains are likely to be modest, according to the forecast.
For the first quarter, the 30-year fixed rate mortgage averaged 3.7 percent. After lowering the forecast for subsequent quarters by a tenth of a percent, expect rates to average 4 percent in 2016. Forecasting that on average, house prices will rise by 4.8 percent and 3.5 percent in 2016 and 2017, respectively. Rising home prices will drive up homeowner equity.
“We’ve revised down our forecast for economic growth to reflect the recent data for the first quarter, but our outlook for the balance of the year remains modestly optimistic for the economy,” Freddie Mac Chief Economist Sean Becketti said. “However, we maintain our positive view on housing. In fact, the declines in long-term interest rates that accompanied much of the recent news should increase mortgage market activity, particularly refinance.”