[REN #837] Real Estate News Brief: Freddie Mac’s 2020 Forecast, Greenspan’s Inflation Warning, U.S. Credit Scores

Real Estate News Brief: Freddie Mac's 2020 Forecast, Greenspan's Inflation Warning, U.S. Credit Scores, Real Estate News for Investors Podcast Episode #837

In this week’s Real Estate News Brief… Freddie Mac’s 2020 forecast, a Greenspan warning about inflation, and credit score improvements for U.S. consumers. 

Economic News 

We begin with a short list of economic news from this past week because of Christmas. The government released numbers for new home sales before the Christmas holiday that show a slight increase of 1.3% in November. New home sales have been getting better since the beginning of summer. (1) 

Home builder confidence has also been growing, as we reported last week. And that’s a good sign for inventory growth as we head into the new year. Wells Fargo economist Sam Bullard told MarketWatch, “Looking ahead into 2020, we expect new home sales to remain supportive to the overall housing market, aided by low mortgage rates, solid demand, tight inventory in the secondary sales market and a healthy labor market.” 

Mortgage Rates 

Mortgage rates stayed about the same this last week. Freddie Mac says the average 30-year fixed-rate mortgage was only up one basis point to 3.74%. (2) The average for the year is 3.9%. That’s the fourth lowest annual average since 1971, according to Freddie Mac. 

Freddie Mac 2020 Projections 

The mortgage guarantor issued its December forecast for the coming year. It shows a housing market that will remain stable, thanks in part to low mortgage rates and the slow but growing economy. Home sales are expected to increase as builders make progress in catching up to demand. Freddie Mac expects home sales to rise from 6 million in 2019 to 6.2 million in 2020, and as many as 6.3 million in 2021. (3) 

The low unemployment rate combined with low mortgage rates will likely push homeownership higher. It hit a four-year high of 64.8% this year. That’s after a low-point in 2016 of 62.9%. It still has a ways to go to reach a record high of 70%. The nation hit that milestone in 2004, before the housing bubble burst. 

As for mortgage rates, Freddie Mac expects them to stay below 4% for the next two years. The average will likely be around 3.9%. 

In other news making headlines… 

Legislative Wins for Real Estate 

The House of Representatives approved several items in their 2020 spending bill that are important for the real estate industry. One is the reauthorization of the National Flood Insurance Program. House members extended the program another nine months, through September of next year. That prevents a major disruption of the housing market because flood insurance is a requirement for some home buyers seeking a loan. The program still needs a major overhaul to make it more efficient, affordable, and fair for homeowners, and to insure it will remain solvent going forward. 

Another item included in the spending package is the extension of certain real estate-related tax incentives. Those include: 

  1. The exclusion of mortgage debt from gross income
  2. The deductibility of mortgage insurance premiums
  3. The deductibility of energy efficient upgrades for commercial buildings 

Those three items expired at the end of 2017. The extension makes them retroactive to the beginning of 2018 through the end of next year. 

The third item is the reauthorization of terrorism risk insurance for commercial properties, which is also known as TRIP. That is also something that may be required for the financing of these properties. It would have expired in 2020. It was re-authorized for another seven years. (4) 

Greenspan Inflation Warning 

Former Fed Chief Alan Greenspan is issuing a warning about inflation. He said that the surging U.S. budget deficit will cause inflation to soar. He told CNBC, “Right now, there’s no real inflation at play. But if we go further than we are currently, inflation is inevitably going to rise.” (5) 

The deficit was $984 billion for the 2019 fiscal year that ended in September. The deficit is running about 12% higher so far this year. The Congressional Budget Office is expecting it to top the one trillion dollar mark in 2020 and remain there for the entire decade. The U.S. deficit has has hit that mark recently. It was running a $1 trillion-plus deficit from 2009 through 2012. Recent economic improvements helped close that gap. 

As Newsmax reports: “The fiscal imbalance started to grow again after President Donald Trump and Congress pushed through a massive tax cut in 2017 while ramping up spending. Adding to budget pressures: The baby boom generation is retiring and beginning to collect Social Security and enroll in Medicare.” 

So far, inflation has been holding at around 2%. 

Credit Scores Hit 8-Year High 

Americans are doing what they need to do to improve their credit scores. Realtor.com reports that the average Experian credit score hit an eight-year high of 682 points. (6) That’s two points higher than it was a year ago. The credit rating agency says that consumers are taking on more debt with fewer defaults. 

Experian’s Shannon Lois says, “We’re seeing a promising trend in terms of how Americans are managing their credit as we head into a new decade. Average credit card balances and debt are up year over year, yet utilization rates remain consistent at 30 percent, indicating consumers are using credit as a financial tool and managing their debts responsibly.”

Links:

(1) MarketWatch Article

(2) Freddie Mac Article

(3) HousingWire Article

(4) Realtor Magazine Article 1

(5) Newsmax Article

(6) Realtor Magazine Article 2

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