Spring Homebuying Season Off to A Great Start With Mortgage Rates Seeing the Biggest One-Week Drop in a Decade

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Spring is traditionally the busiest season for homebuyers. In fact, 40% of annual home sales happen during the four-month period from the start of spring to summer, according to the National Association of Realtors®.

So far, the spring buying season is off to a promising start. One encouraging sign is that Freddie Mac announced on March 28 that the housing market had just seen the sharpest one-week drop in mortgage rates in a decade, with the 30-year fixed rate hitting 4.06% and kicking off a surge in mortgage lending activity.

Housing economist Brad Hunter writes in Fortune about the rate drop and forecasts a brisk housing market in the coming weeks:

We immediately saw increased activity among home shoppers.  Mortgage applications from home shoppers jumped 6% on an adjusted basis during the week ended March 22, as the average rate for a 30-year fixed-rate mortgage fell to 4.45% from 4.55% the previous week. Since then, rates have fallen even further, with rates back near 4.0%.

People who felt like they missed the boat when mortgage rates came up and away from the 3s now have a chance to lock in a 30-year fixed mortgage right around 4%, and possibly even lower. This trend will lend a boost to the spring home-buying season. The volume of home transactions in April and May is likely to be strong.

Hunter’s sunny prediction is in line with Freddie Mac announcing in its March Forecast that the mortgage market is expected to see modest growth in 2019 buoyed by lower mortgage interest rates.

In a press release (PDF), Sam Khater, Freddie Mac’s chief economist, said,

“The real estate market is thawing in response to the sustained decline in mortgage rates and rebound in consumer confidence – two of the most important drivers of home sales. Rising sales demand coupled with more inventory than previous spring seasons suggests that the housing market is in the early stages of regaining momentum.”

Here are some additional highlights from Freddie Mac’s March Forecast:

  • Owing to the decline in residential fixed investment and consumer spending, as well as the effects of the government shutdown in January, we have lowered our GDP growth rate forecast for the first quarter of 2019 to 1.2 percent. We forecast GDP to regain its strength during the rest of the year but expect overall GDP growth to decelerate to 2.0 percent in 2019 and 1.8 percent in 2020.

  • Recent labor market reports emphasize the growing chasm between job openings and available labor, as well as the slow increase in nonfarm payroll – indicating a tightening labor market. We forecast unemployment to drop slightly to 3.8 percent in 2019 before increasing to 3.9 percent in 2020.

  • The 30-year fixed-rate mortgage rate is expected to average 4.5 percent in 2019 before increasing to 4.8 percent in 2020.

  • Due to the recent increases in building permits, we anticipate that total housing starts will gradually increase over the next two years with most of the growth coming 2 from single-family housing starts. Total housing starts are expected to increase to 1.27 million units in 2019 and to 1.33 million units in 2020.

  • With mortgage rates down significantly from last fall, we expect to see existing home sales bounce back and trend higher for the rest of the year. We expect total home sales (new and existing) to reach 5.94 million in 2019 before increasing to 6.14 million in 2020.

  • Single-family mortgage originations are expected to increase by 1.6 percent to $1.67 trillion in 2019 and remain at a similar level in 2020.

  • We have lowered our home price growth forecasts to annual increases of 3.5 percent and 2.5 percent in 2019 and 2020, respectively.

While Hunter is optimistic about the housing market, he nonetheless encourages would-be homebuyers to exercise caution:

This is a great time for home buyers and homeowners to lock in a low fixed mortgage rate. That said, it is wise to buy for one's needs, not for appreciation. As mortgage rates creep higher in the years ahead, there will be an accompanying drag on home values due to rising monthly payments and higher qualifying incomes for purchases. We are likely to see rates of home appreciation cut by two-thirds compared with the past five years. Would-be buyers are also well-advised to avoid the temptation to buy more house than they can afford, particularly at this stage of the business cycle.