Tight Inventory Deflates Home-Sales Expectations
How much further will home prices and rents have to rise to motivate more home owners to sell? Freddie Mac’s Chief Economist Frank Nothaft asks the question in the mortgage giant’s U.S. Economic and Housing Market Outlook for June.
What's Happening With Inventory
"We're nearly halfway through the year, and single-family housing remains weaker than we projected six months ago, while multifamily appears to be right on track," Frank Nothaft, Freddie Mac's chief economist, writes in the mortgage giant's U.S. Economic and Housing Market Outlook report for June. “With vacancy rates moving back in line with historical averages — even falling below historical averages in some markets — and for-sale inventories remaining tight, U.S. home-price indexes are likely to continue their above-inflation growth for the remainder of the year, as will rent gains, albeit much slower than in 2013. The important question is how much further will prices and rents have to rise to give incentives for more existing owners to list their property for sale and developers bring more supply to the market. Construction has rebounded over the past two years but is still significantly below the levels one would expect to see given projections of household formations."
In its latest report, Freddie Mac lowered its 2014 home sales expectations from 5.5 million to 5.4 million. Mortgage applications for home purchases are on the rise recently, but still remain 13 percent below last year levels, Freddie reports.
Fixed-rate mortgages are expected to rise gradually during the latter half of this year as the Federal Reserve continues the "tapering" of mortgage-backed securities.
Still, mortgage rates will remain low by historical standards, with the 30-year fixed-rate mortgage expected to end the year around 4.4 percent, Freddie Mac projects.
Meanwhile, the total number of vacant units in the U.S. has fallen 4.2 percent between the first quarter of 2010 and the first quarter of 2014. The number of for-sale vacant units fell by 24.2 percent in the same time period.