U.S. housing demand has rebounded from its mid-April trough, as low interest rates and government stimulus measures help to counteract an otherwise grim economic picture. As of mid-June, home purchase applications reached the second-highest weekly level of the year, up 12 percent from a year earlier, according to Freddie Mac’s latest quarterly forecast.
This represents an unexpected recovery from mid-April, when home purchase activity was down 30 percent. The data turned negative in late March as the COVID-19 crisis hit the U.S., but it has taken only 10 weeks for demand to return to normal, compared to 10 years after the Great Recession. Freddie Mac acknowledges that the demand recovery may stem from deferred sales as well as some demand being pulled forward as prospective buyers take advantage of ultra-low interest rates.
Also fueling recovery is the CARES Act, the huge economic stimulus package that has boosted government income transfers to consumers by 90 percent or $3 trillion. This led to an 11 percent increase in total personal income, the largest monthly growth on record, despite historic unemployment numbers.
Freddie Mac forecasts that home sales will decline to 4.8 million in 2020, due to the impact of the pandemic, before climbing to 5.6 million in 2021, a figure that would still fall short of the 6.0 million achieved in 2019. Home price growth is projected to slow from 2.3 percent this year to 0.4 percent in 2021. The government-sponsored enterprise projects that the 30-year fixed-rate mortgage will remain low, declining to a yearly average of 3.4 percent in 2020 and 3.2 percent in 2021.
Refinance originations are likely to stay at high levels in this environment, after surging in the first half of 2020. Freddie Mac expects refinance originations to total $1.9 million this year and then fall to $1.3 trillion in 2021. The drop in home sales is expected to weigh on purchase originations, which are projected to reach $1.0 trillion in 2020 and rise to $1.2 trillion next year.
Reduced homeownership over the next year or two could drive increased demand for renting. A new report by multifamily real estate firm Middleburg Communities projects that homeownership will decline to 62.1 percent, the lowest rate in two decades, before a partial recovery to 63.6 percent in 2025. Depending on how the recession plays out, demand for rental housing is projected to grow by 33 to 49 percent through 2025.