At the beginning of 2018, new home sales gave the year an unexpectedly low start, however Freddie Mac still believes they will push the housing market forward in 2018.
In January, new home sales dropped 7.8% from December’s annual rate of 643,000 to 593,000, a move that the housing market wasn’t expecting.
Now, the mortgage giant claims it is changing its forecast little from previous predictions, when it said new home sales are set to take over the housing market in 2018.
“While existing home sales may struggle to top their best-in-over-a-decade 2017 performance, new home sales should provide enough growth to push total home sales in the U.S. modestly higher in 2018,” said Len Kiefer, Freddie Mac deputy chief economist. “Housing construction continues to lag demand by a wide margin, so we expect to see housing starts grind higher in 2018.”
Freddie Mac predicts that recently passed tax reform will have a limited effect on national home prices. While markets with higher average incomes, and thus more likely to itemize deductions, property taxes could have a larger impact on home prices – as much as 2%.
However, the highest impact on home prices will come from rising mortgage rates, which impacts all households, according to Freddie Mac.
“The most recent release of the Freddie Mac House Price Index shows U.S. house prices increased 7.1% from December 2016 to December 2017,” Kiefer said. “With construction ramping up slowly to meet demand, house prices should continue to increase, though the pace of growth may moderate as higher interest rates pinch affordability and the tax bill shifts the balance between buy and rent.”
The GSE estimates that, adjusted for inflation in 2017 dollars, about $14.8 billion in net home equity was cashed out during the fourth quarter for the refinance of conventional prime-credit mortgages. This is down from $19 billion the year before, and is significantly less that the peak cash-out volume of $102.3 billion during the second quarter of 2017.