Freddie Mac: New home sales set to take over in 2018

Home sales are expected to increase slightly in 2018 as new home sales take over the market, according to Freddie Mac’s monthly Outlook for September.

Freddie Mac expects housing starts to increase to 1.33 million in 2018, up from 1.22 million in 2017. In fact, the GSE predicted that new home sales will continue to increase and become the primary driver of home sales next year.

Overall, home sales are expected to increase 2% from this year to next, according to the report.

“The economic environment remains favorable for housing and mortgage markets,” Freddie Mac Chief Economist Sean Becketti said. “For several years, we have had moderate economic growth of about 2% a year, solid job gains and low mortgage interest rates. We forecast those conditions to persist into next year.”

This gradual increase in new homes, combined with gradual increases in mortgage rates, will help reduce rapidly-rising home prices next year. Freddie Mac predicts home price growth will hit 4.9% in 2018, compared to a growth of 6.3% seen so far in 2017.

On the positive side of rising home prices, homeowners continue to see their home equity grow. A new report from CoreLogic shows each homeowner gained nearly $13,000 from last year, with homeowners in some Western states seeing their equity rise about $40,000.

In the second quarter of this year, the dollar volume of equity cashed out totaled $15 billion, Freddie Mac’s report showed. This is up $1.2 billion from the first quarter, but down $19.1 billion from the fourth quarter of 2016. The company forecasted that as home prices continue to rise, cash-out activity will also likely rise.

But even as new home sales will continue to gain prominence, refinances will diminish. As mortgage rates move upward, the total share of refinances is expected to fall 25% in 2018 to the lowest annual share since 1990.

In July of last year, the 30-year fixed-rate conventional conforming rate refinance potential rested at about $800 billion. In July this year, that total dropped to about $300 billion. However, Freddie Mac pointed out refis did not fall as much as it estimated with originations down 48% from the first half of 2016 to the first half of 2017.

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