Freddie Mac: Loan Affordability Is a Warning Factor
With strong home sales—a projected 5.73M units, tops since 2007—and increased refinance activity, Freddie Mac expects the single-family housing market to do very well this year, raising its mortgage origination estimate to $1.45T for 2015, and $1.3T for 2016. With such lofty expectations, there's always a danger of a potential fall in overheated property values, as no single metric will indicate a potential price bubble forming, Freddie Mac chief economist Sean Becketti says, pointing instead to loan affordability as an indicator. Cash-out refinances are up 7% from the previous quarter, which can be a double-edged sword for consumers long-term, Freddie Mac says. Despite the warning signals, people don't seem to care, as more and more borrowers are shortening loan terms with 40% choosing 15-or 20-year loans, up from 39% in Q1. And consumers seem solely focused on the financing rate of their recent home purchases. To avoid an economic free fall, Becketti says, affordability statistics should be treated as a warning, like a campground sign warning of forest fires. "We recognize when the danger is elevated," he says," but we can't predict for sure if or when someone will accidentally drop a match in the wrong spot."
