A stronger economy, easing house price appreciation and slightly improving inventory conditions aren't enough to push up home sales this year, according to Freddie Mac's September forecast.
Total home sales, including new and existing homes, are expected to decline 0.9% compared to last year, with property value growth steadying at 5.5%.
The job market is picking up, and the economy grew at a rate of 4.2% in the second quarter — its fastest pace in almost four years. Still, the housing market has stalled on affordability declines and supply and demand imbalances. Homebuilder hurdles also contributed to fewer home sales, as higher costs for land and lumber and regulatory burdens prevented new housing from flourishing — especially concerning starter home inventory.
"Prospective buyers are being squeezed the most where demand is the strongest: the entry-level portion of the market. While price appreciation is welcomingly starting to ease in many markets, weakening affordability continues to hamper overall activity," said Freddie Mac Chief Economist Sam Khater in a press release.
Last year's declines in refinance activity and home sales should drive first-lien mortgage originations down 9% to $1.65 trillion.
While the share of cash-out refis hit their highest level last quarter since 3Q08 (78%), the total dollar volume of cash-out refinances sits far below its peak reached over a decade ago. Last quarter, $15.5 billion in net home equity was chased out, compared to the peak volume of $102.3 billion achieved in the 2Q06.
