Freddie Mac released its monthly Insight & Outlook report for December. The Outlook, reviews the likely impact on the housing market in 2016 of the Federal Reserve’s long-awaited decision to raise short-term interest rates.
Freddie Mac expects the 30-year fixed-rate mortgage to average below 4.5 percent for 2016 on an annualized basis. Gradually higher mortgage interest rates will present an affordability challenge, but one should expect a strengthening labor market and pent-up demand to carry 2015’s home sales momentum into 2016.
According to the report, the economy has largely improved since the financial crisis. The economic recovery appears to be picking up momentum in terms of real growth in the third quarter being revised up to 2.1 percent, new durable goods orders increasing 3 percent in October exceeding even the most optimistic of forecasts, while inflation remains subdued. The report states that it expects the restrained price inflation to support strong spending.
The report also shows an expectance of the house price growth to moderate to 4.4 percent in 2016 driven in part by the reduction in homebuyer affordability and reduced demand as a result of Federal tightening. Housing activity will grow despite monetary tightening, while total housing starts will increase to 16 percent year-over-year and total home sales will increase 3 percent.
The complete monthly Insight and Outlook commentary is available here.