How Freddie Mac’s 2016 Predictions Impact Potential Homebuyers

Article provided by: J.W Mortgage Capital LLC

  • How Freddie Mac's 2016 Predictions Impact Potential Homebuyers

    A new year brings new trends for the real estate market, meaning potential mortgage borrowers will now face a different landscape. A recent announcement by the Federal Reserve to adjust the key funds rate may have a direct impact on those looking to take out a sizeable loan, as banks and lending firms could pass along those raised rates to borrowers. However, this is not the only potential change set to take place.

    Sean Becketti, chief economist for government-sponsored mortgage agency Freddie Mac, recently gave HousingWire predictions for the 2016 real estate market. Becketti sees some good news for potential borrowers, stating the recent Fed announcement shouldn't mean much higher home mortgage rates. Even if they rise slightly, Becketti believes mortgage rates will stay low this year.

    Along with that prediction, Becketti gave other previews as to what 2016 will bring for borrowers. Understand what these expectations could potentially mean if you are considering entering the real estate market and could need a mortgage in the next year.

    1. Slightly Higher Rates Won't Impact Home Sales

    "Unemployment is decreasing while average payrolls are rising."


    Even if mortgage rates do go up a bit, few expect the movement to have a serious impact on how many homes are sold. In 2015, sales increased for the majority of the year, peaking at 5,580,000 in July. However, they began to slide as fall turned into winter, bottoming out in November at 4,760,000, according to the National Association of Realtors.

    Becketti cited the improving job market as a reason he and Freddie Mac felt that home sales would rebound and return to strong shape again in 2016. The U.S. Bureau of Labor Statistics announced in December that in the majority of the U.S., unemployment is decreasing while average payrolls are rising. With more people having money coming in, the competition for home purchases should remain healthy.

    2. Expect More Houses on the Market
    Housing starts track how many privately owned homes have begun construction during a specific time period. Just as higher interest rates won't make too much of an impact in how many existing properties are sold, Becketti was confident that the increased cost of homeownership wouldn't deter people from construction either.

    Housing starts took a serious dip during the economic crash of the previous decade, dropping down to just 478,000 in April 2009, the Federal Reserve reported. They have since rebounded to more than 1.1 million in November 2015.

    Becketti projected further jumps in 2016, with a 16 percent year-over-year climb of housing starts.

    3. Expectations for Rates on 30-Year Fixed-Rate Mortgages to Stay Below 4.5 Percent
    While a wide variety of factors influence the cost to borrowers for taking out a mortgage, the decision by the Federal Reserve decision to raise benchmark rates – minimal as it may be – will have some impact. This is especially the case for 30-year fixed-rate mortgages, as those costs are locked in for the length of the contract.

    "Even with the rising interest rates, fixed-rate mortgage rates will still be affordable."


    According to the Federal Reserve Bank of St. Louis' Department of Economic Research, rates for 30-year fixed-rate mortgages have remained fairly low in recent years. In 2015, rates peaked on July 9, at 4.09 percent. They fell as the summer progressed and were last reported at 3.96 percent on Dec. 24.

    Becketti believes that even with the rising interest rates, fixed-rate mortgages will still be affordable. He stated that he didn't think interest on the average mortgage would exceed 4.5 percent. The last time prices were recorded that high was Jan. 9, 2014, when fixed rates were at 4.51 percent.

    4. Housing Prices Will See a Slight Bump
    Overall home values have steadily risen over the past three years. Since January 2012, when the average home value was around $153,000, the price has continued to go up, Zillow reported. The current value is $183,000, and Becketti expects another jump in 2016.

    While values are expected to rise, the growth should not be as steep as it has been in years past. Because of reduced demand for new housing as a result of the rising rates, home sellers are not as likely to get their desired price.

    In 2015, home values went up 4.3 percent, according to Zillow. Becketti projected similar numbers this year, as he told HousingWire to expect a 4.4 percent jump in 2016. For those looking to buy a home in the coming year, the news is promising, as homes should not be much more expensive than they are now.

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Author: Monte Davis

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