More Evidence That Home Prices Will Continue to Outpace Inflation in 2018 and 2019

March 22, 2018 by Jon C. Ogg

If you already have a normal home in a good market, the housing market is great. If you want to buy, you already have to pay up — and you better get ready to pay even more. Rising home prices are a good thing in general. The problem is that as housing prices rise, most incomes are not rising enough to keep up with the price increases.

Freddie Mac has released its monthly housing outlook for March. The report talks about how many homeowners are seeing higher equity along with higher home prices at the same time that it’s becoming more difficult for first-time homebuyers to buy a house.

In the March outlook, Freddie Mac sees mortgage rates and home values both continuing to rise throughout 2018. At the same time, construction is still shown to be rising slowly. This is all in a market in which consumer confidence is at 17-year highs and the jobs market has continued to improve.

The 30-year fixed mortgage rate was about 4.0% on average in 2017. As of March 15, the U.S. weekly average 30-year fixed mortgage rate was 4.44%, roughly 50 basis points higher than in January. That 30-year rate is now projected to average 4.6% in 2018 and 5.1% throughout 2019. That said, Freddie Mac is seeing the 30-year mortgage rate averaging about 4.9% in the fourth quarter of 2018.

And on housing values having risen since the recession and where the housing prices are heading, Freddie Mac’s March outlook says:

Since the end of the Great Recession in 2009, home prices are up 37 percent nationwide (and seven percent in the last year), helping homeowners rack up record amounts of home equity; about $14.4 trillion in the fourth quarter of 2017. Homeowners with mortgages have a collective $5.5 trillion in equity available to borrow against, according to Black Knight Data & Analytics. With construction ramping up slowly to meet housing demand, home prices are likely to continue rising above the rate of inflation. We forecast a 5.1 percent increase in 2018.

Freddie Mac also has some forecasts for 2018 and 2019 prepared by the Economic & Housing Research group. These were shown as follows:

  • Real GDP averaging 2.7% in 2018 and 2.1% in 2019.
  • Consumer prices averaging 2.5% in 2018 and 2.4% in 2019.
  • Unemployment averaging 4.0% in 2018 and 4.0% in 2019.
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