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Freddie Mac Releases Housing Market Outlook

 December 10, 2012 02:47 PM

(By Balachander) Freddie Mac expects most U.S. house price indexes (HPI) likely rising by 2 to 3 percent in 2013 as property values to continue to strengthen.

Over the twelve months ending September, the Federal Housing Finance Agency Purchase-Only HPI was up 4.5 percent and the Freddie Mac HPI was up 4.3 percent, Freddie Mac noted. Similarly, apartment building values rose, with the National Council of Real Estate Investment Fiduciaries reporting a four-quarter rise of 6.3 percent through the third quarter.

In its U.S. Economic and Housing Market Outlook for December, Freddie Mac sees long-term mortgage rates to remain near their record lows for the first half of 2013, then rising gradually during the second half of the year.

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Freddie Mac expects long-term fixed-rate mortgage rates to remain below 4 percent, meaning homebuyer affordability should remain very high in 2013 for those potential buyers with good credit history, stable income and sufficient savings in the single-family market.

Freddie Mac said household formation should step up further to a net 1.20 to 1.25 million household increase in 2013 with housing starts up around the 1 million annualized pace by the fourth quarter of next year.

Vacancy rates for both apartments and the single-family for-sale market have been trending lower for much of the past three years, Freddie Mac noted, as household formation outpaced new construction. The firm expects this trend to continue in 2013 and could bring aggregate vacancy rates down to levels last seen a decade ago.

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Freddie Mac expects refinance activity for 2013 to be less compared with 2012, saying many homeowners will have little financial incentive to refinance again and an increase in interest rates. Single-family mortgage originations is expected to decline by 15 percent.

"The last few months have brought a spate of favorable news on the U.S. housing market with construction up, more home sales, and home-value growth turning positive," said Freddie Mac chief economist Frank Nothaft. "This has been a big change from a year ago, when some analysts worried that the looming 'shadow inventory' would keep the housing sector mired in an economic depression."

"Instead, the housing market is healing, is contributing positively to GDP and is returning to its traditional role of supporting the economic recovery," Nothaft added.

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