The prospect for growth in the housing market in 2017 remains solid, but that said, some anxiety may taper growth somewhat this year, according to Freddie Mac’s latest 2017 Outlook report on the housing market.
“We must grapple with uncertainty about fiscal policy, foreign investments in U.S. real estate, and the size of the mortgage market,” says Sean Becketti, Freddie Mac’s chief economist. “Among the many uncertainties we highlighted, however, a smaller mortgage market in 2017 than 2016 seems most certain.”
Freddie Mac economists predict that mortgage origination volumes will fall in 2017, mostly driven by a sharp reduction in refinance activity. They predict that mortgage rates will rise throughout 2017, which likely will dampen mortgage market activity. As such, economists predict that refinancing activity will plummet by more than 50 percent from 2016 levels, reaching about $425 billion in 2017.
“Upheaval associated with the Brexit vote last June helped to keep rates low throughout the summer,” they said. “Could we see a repeat in 2017? There are key elections in France, Germany, and the Netherlands this spring that could potentially shock markets like the Brexit vote last year. We don’t know how these elections will go and how bond markets will react, but they have the potential to drive long-term interest rates here in the U.S.”
Furthermore, economists note that appreciation of the U.S. dollar recently is making U.S. real estate pricier to many international buyers, according to Freddie Mac.
“It remains to be seen if foreign buyers will still seek to invest in U.S. real estate if the dollar trend continues in the future,” Becketti says. “A contraction in foreign demand would have a small impact on many U.S. housing markets, but it would have a significant impact on particular markets that are more reliant on foreign investors.”
Source: Freddie Mac and “Anxiety Dominates Freddie Mac Monthly Outlook,” DSNews (Jan. 30, 2017)