SOURCE: Freddie Mac

Freddie Mac

December 21, 2016 09:00 ET

Freddie Mac December 2016 Outlook

After housing's best year in a decade, what's next?

MCLEAN, VA--(Marketwired - Dec 21, 2016) - Freddie Mac (OTCQB: FMCC) released today its monthly Outlook for December with a look back on the best year in housing over the past decade and where it's likely headed in the next couple years. 

Outlook Highlights 

  • The surprising decrease in mortgage rates helped spur housing activity to the highest levels in a decade with existing home sales through October at their highest level of any year since 2006.
  • Forecasting $1 trillion in single-family mortgage refinance originations for full-year 2016, the highest total since 2012. Borrowers also are starting to take advantage of their increased equity through cash-out refinances. Borrowers cashed out approximately $42 billion in the first three quarters of 2016, up $10 billion over the same period in 2015.
  • Forecasting house price growth to drop from 5.9 percent in 2016 to 4.7 and 3.8 percent in 2017 and 2018 respectively. Income growth probably won't keep pace, which means homebuyer affordability will challenge prospective homebuyers in many markets.
  • Estimate that long-run fundamental demand for housing is about 1.7 million units annually in the U.S. For 2016 full year, expect about 1.16 million units. Even with construction expected to increase to 1.26 and 1.36 million units in 2016 and 2017, it's still going to be below long-run demand.
  • Mortgage refinance activity will drop to very low levels, and the refinance share of mortgage originations will drop to 28 and 20 percent in 2017 and 2018, respectively. Increased purchases will partially offset this drop, but in 2017 expect about a 25 percent reduction in mortgage originations. 

Quote: Attributed to Sean Becketti, Chief Economist, Freddie Mac.

"Over the next two years we anticipate the economy will keep growing at a modest pace, inflation will pick up and the labor market will stay at full employment. Interest rates will gradually rise as the Federal Reserve continues on its path of policy normalization. Housing markets will slow a bit in 2017, but they will recover after they absorb the initial shock of higher interest rates.

"Mortgage origination activity will slow significantly in 2017 as refinance activity withers. In 2018, mortgage origination activity will increase slightly, but the composition will shift to a purchase-dominated market -- unlike any mix we have seen since the 1990s." 

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four home borrowers and is the largest source of financing for multifamily housing. Additional information is available at, Twitter @FreddieMac and Freddie Mac's blog