Low inventory is putting a tight squeeze on the housing market, according to a new report from Freddie Mac. The government-sponsored entity has lowered its homes sales forecast for 2014 in response; it now predicts that there will be approximately 5.4 million home sales across the country this year, down from the 5.5 million it foresaw at the beginning of the year.
Freddie’s mid-year U.S. Economic and Housing Market Outlook reports that while the total number of vacant units across the country has decreased by 4.2 percent from the first quarter of 2010 to the first quarter of 2014, the number of vacant units for sale has declined by 24.2 percent (485,000 units), making it tough for potential buyers and renters to find new homes and buoying prices.
"We’re nearly half way through the year and single-family housing remains weaker than we projected six months ago, while multifamily appears to be right on track. With vacancy rates moving back in line with historical averages, even falling below historical averages in some markets, and for-sale inventories remaining tight, U.S. home price indexes are likely to continue their above-inflation growth for the remainder of the year, as will rent gains, albeit much slower than in 2013," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Home purchase applications have increased in recent months, but they’re still currently 13 percent below last year’s levels. Freddie expect interest rates to slowly rise in the second half of the year, in part due to the Federal Reserve’s "tapering" of net mortgage-backed securities acquisitions. Freddie predicts that the 30-year fixed-rate mortgage rate will end the year around 4.4 percent.
"The important question is how much further will prices and rents have to rise to give incentives for more existing owners to list their property for sale and developers bring more supply to the market. Construction has rebounded over the past two years but is still significantly below the levels one would expect to see given projections of household formations," added Northaft.
