Freddie Mac recently released its U.S. Economic and Housing Market Outlook for January, looking at some of the positive tailwinds buoying the economy at the start of the year and why some may not stick around for long.
Home price appreciation is expected to increase to a 3.5 percent rate annualized for 2015, a 0.5 percentage point increase over last month.
Expect mortgage rates to remain around 4 percent for the first two quarters of the year as long as uncertainty in foreign markets continues to result in a flight to safety into U.S. Treasury long-term bonds.
Among conventional 30-year fixed mortgage agency MBS, there are $361 billion with a 4.5 percent coupon and an additional $479 billion with a MBS coupon of greater than 4.5 percent. Many of the mortgage loans in the pools underlying those MBS would have an interest rate of 5 percent or higher, giving the borrowers a strong incentive to refinance at today's rates.
Due to lower than expected mortgage rates, the refinance share has been adjusted higher by 9 percent with much of the increase attributed to the boost from refinance activity.
As labor markets tighten, expect wage growth to pick up. For example, the National Federation's Independent Business Index for December shows most small businesses expect to increase employee compensation to the highest level since 2006.
For more information, visit www.freddiemac.com.
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