Home sales will struggle to rise above their current levels as housing inventory continues to shrink, according to Freddie Mac’s newly released monthly Outlook for April, which looks at the correlation between supply and demand in the housing market.
Freddie Mac explained that while income growth could cause the housing market to post modest growth, it may not rise much above its current levels.
“The broader economic environment remains favorable for home sales,” said Len Kiefer, Freddie Mac deputy chief economist.” But without new home construction and increased housing supply, home sales in the U.S. will have a hard time growing from current levels.”
“If incomes grow and mortgage rate increases are gradual, then the housing market should post modest growth this year and next,” Kiefer said.
Freddie Mac expects total home sales to increase from 6.12 million in 2017 to 6.3 million in 2018 and to 6.44 million in 2019. The GSE predicts new home sales will drive the majority of this growth.
Freddie Mac said construction of new homes has been ramping up recently, but it has not been enough to match demand. Housing starts have been held back by labor shortages and an increase in development costs since the crisis. However, homes under construction reached a new expansion high at 1.12 million in March.
The company forecasts the economy will continue to grow with gradual increases in interest rates. It expects mortgage rates to follow the 10-year Treasury higher to average 4.9% by the fourth quarter of 2018 and 5.4% by the fourth quarter of 2019.