Low mortgage rates and strong job growth are giving the housing market one of its best years in decades—even as overall economic growth has weakened—according to Freddie Mac’s monthly Outlook report for May. The report’s optimism is a change from the mortgage giant’s previous predictions when economists said the housing market likely would not perform as well as it did in 2016.
New-home sales in March were better than expected, and existing-home sales that month rose to the highest level since 2007. Now Freddie economists expect home sales to top 6 million in 2017. “Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise,” says Sean Becketti, Freddie Mac’s chief economist. “Mortgage rates started March just above four percent and have mostly drifted lower since then, even falling below 4 percent. With home sales, housing starts, and home values up, 2017 is shaping up to be the best year for housing in over a decade.”
Also, unemployment in the U.S. is at 4.4 percent, the lowest rate since 2001.
Mortgage originations in the first quarter of this year totaled about $60 billion more than expected, mostly due to an uptick in refinances, according to Freddie. Mortgage originations in 2017 are expected to rise to more than $200 billion. In the first quarter of this year, 49 percent of refinance borrowers took cash out. That also marks the highest share since the fourth quarter of 2008 but remains far below the peak of 89 percent in the third quarter of 2006.