The Office of the Chief Economist for the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") recently released the agency's November 2014 U.S. Economic & Housing Market Outlook. The Outlook contains the predictions of Freddie Mac for 2015. In a nutshell, growth in the gross domestic product ("GDP") will be up, income gains will be modest, mortgage lending interest rates will be up, housing prices will have a slight up-tick, new home construction will be up, total home sales will be up, total mortgage originations will be down, and rental vacancy rates will remain near all-time lows.
Freddie Mac is predicting that the GDP will be up about 3%. That will be only the second year in the past decade with growth at that pace the Outlook states. Gross domestic product estimates the overall growth in the economy from year to year.
The outlook predicts that mortgage lending interest rates will increase to the 5% range. The increase will be gradual throughout the year. That prediction is based on the prediction of increased rates for U.S. 10 and 30 year Treasury Bonds during 2015.
The Outlook is expecting housing price gains to continue through 2015. The gains however, which are predicted to be in the range of 3% for 2015, are at a much slower pace than 2013 and 2014.
Slight increases in income are forecast for 2015. That increase will hopefully be enough to offset increases in housing prices and mortgage interest rates. There is a possibility according to the report that the combination of increases in price and rates and slower gains in income could "dampen homebuying affordability".
New home starts for 2015 are predicted to leap by 20% over 2014 levels. Total home sales are expected to rise by approximately 5%. The increase in new housing starts includes rental apartment construction.
Overall mortgage originations are expected to fall by 8% from 2014 levels to 2015 levels. the Outlook is predicting that purchase originations will climb, but that refinance activity will decline and result in an overall decrease in mortgage originations.
Vacancy rates for residential units are expected to remain near all-time lows in most urban markets. Apartments will be the "first homes" for the increased number of households that are expected to increase in 2015.
I am of the opinion that the growth in GDP is an aggressive prediction as is the predicted increase in new housing starts. From the financial market activity that we have seen in the last couple of months, I am not sure that I agree with the predicted increase in mortgage lending rates. As a homeowner, I am not happy about the dismal increase predicted for housing prices, but I believe from an objective standpoint that their predicted increase may be accurate. A drop in mortgage originations does not thrill me at all. A bright spot would be for overall sales to increase by 5% as predicted. As with reports of this nature, only time will tell which way the wind is blowing when we reach this season a year from now.
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