Finally! New forecast predicts mortgage rates below 6.5% in 2025

The US housing and mortgage market has faced several challenges recently, primarily impacted by high mortgage rates. Freddie Mac provides a detailed analysis of the current state and future forecasts for the market, shedding light on key trends and figures that homebuyers, homeowners, and investors should know.

Latest Mortgage Rate Forecast by Freddie Mac

Current housing market conditions

The housing market has been slow, reflecting a significant impact from rising mortgage rates. As of May, total home sales (existing and new homes) reached 4.7 millionimmediately 2.3% decrease compared to April and a 4.9% decrease year-on-yearNotably, both existing and new home sales declined in May, which deviates from the recent trend where new home sales often offset declines in existing home sales.

Key Statistics:

• Existing Home Sales: 4.11 million (seasonally adjusted annual rate) in May, a decrease 0.7% month-on-month And 2.8% year-on-year.
• Sales of new homes: Annual rate of 619,000 in may, down 11.3% compared to April and forms approximately 13% of the total turnover.

Both existing and new housing stocks improved slightly in May, but they still lag pre-pandemic levels:

• The existing housing stock has increased 19% year-on-year Unpleasant 1.28 million units.
• The inventory of new homes is at its highest level since January 2008.

This slow sales momentum is compounded by the ongoing challenges faced by homebuyers, particularly those struggling with affordability in an environment where high prices and mortgage rates are putting pressure on budgets.

Builder confidence and construction trends

The National Association of Home Builders Housing Market Index reported a decline in confidence of home buildersthat fell on 43 in June by 45 in May. This figure is below the neutral benchmark of 50which points to a less optimistic forecast for building conditions over the next six months, mainly due to:

• Higher mortgage interest rate
• Rising construction costs

The decline in builder confidence reflects the current sentiment among homebuilders, who experience market pressure as a threat to their future planning.

Overview of construction data

Month	Total number of housing starts	Single-family homes begin	Start of multi-family housing
April	–	–	–
Be able to	Decreased 5.5%	Decreased 5.2%	Decreased 10.3%

Despite this decline in housing startsthe number of units under construction in the multifamily sector remains remarkably high, with 898,000 units in progress. This backlog suggests that while new construction may be slowing, there is still significant activity in the market that could alleviate some inventory shortages over time.

Trends in house prices and mortgage rates

An overview of house prices shows that the April FHFA Purchase-Only Homes Price Index showed a slight increase:

• 0.2% month-on-month increase
• A robust 6.3% year-on-year grow

This continued rise in house prices, despite declining sales figures, highlights a key dilemma for potential buyers. Fixed interest rate mortgage for 30 years average 6.92% in Junewhich closed the month on 6.86%It is striking that the mortgage interest rate fell below the 7%the Association of Mortgage Bankers noted an increase in mortgage activity.

• Refinancing activity increases: Upwards 25.9% in the last week of June compared to the previous month.
• Purchase Applications: Rose 8.0% month-on-month the end of June.

This increase in mortgage applications indicates that potential buyers and homeowners looking to refinance are seizing the opportunity to get more favorable interest rates while they are still available.

Housing Market Predictions

Freddie Mac expects the U.S. economy to continue to feel the effects of higher interest rates, leading to lower growth rates and a weaker labor market. 2024 and 2025Although inflation figures appear stable and show a reassuring trend, the outlook remains cautious.

• Possible interest rate cuts: If the labor market softens enough to control inflation, a rate cut could occur later this year. This could provide some relief for mortgage rates in 2024.
• Mortgage interest rate forecast: The rates would be below the 6.5% Through 2025making buying a home more affordable and stimulating the housing market.

Future Origin Projections

Freddie Mac’s forecasts point to a modest increase in purchase origin volumes the coming years, supported by high house prices. However, affordability issues are expected to limit significant improvements in the future 2023 levels.

• Purchase origin: Freddie Mac predicts that while home purchases will increase somewhat in 2024, affordability will still be a barrier for many potential buyers. High home prices continue to pose obstacles for many potential buyers.
• Refinancing of origin: It is expected to be flat in 2024but the decline in mortgage interest rates under 6.5% in 2025 could lead to an increase in refinancing as homeowners take advantage of lower interest rates.

What this means for homebuyers and investors

Freddie Mac’s forecast paints a complex picture for potential homebuyers and investors. While lower rates could open up new opportunities for many, the economic landscape remains fraught with challenges. Here are some considerations:

• For first time home buyers:Those entering the market can expect some relief in the coming years from potentially lower interest rates, but high house prices could still threaten affordability.
• For existing homeowners: Many homeowners who took out mortgages at higher rates can benefit significantly from refinancing options as rates fall. Those considering refinancing should evaluate their options thoroughly.
• For investors: Increasing inventory and potential rate cuts could present unique opportunities in the market. However, investors should exercise caution and monitor economic indicators and housing affordability trends.

Conclusion

In summary, Freddie Mac’s latest mortgage forecast highlights a cautious but promising outlook for the U.S. housing market. While current conditions pose hurdles for buyers, potential future declines in mortgage rates could offer a silver lining.

It is crucial for all market participants, whether buying, selling or refinancing, to remain informed and adaptable to the changing economic landscape so that they can navigate the challenges and make the most of the opportunities as they arise.

This forecast presents both challenges and opportunities, making it essential for potential buyers and investors to stay informed about the changing landscape of the housing market. The impact of macroeconomic factors and housing supply dynamics will continue to shape the future of homeownership in America.

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