Housing Market will have the best year in a decade per Freddie Mac

At the end of 2015, interest rates on 30-year fixed rate mortgages averaged over 4 percent, but declined at the start of 2016 and have remained below 4 percent so far this year. Low mortgage interest rates help support home buyer affordability in the face of rising house prices and stagnant income. If interest rates rise rapidly, like they did in the spring of 2013, housing market activity is likely to cool significantly. Our forecast is for mortgage interest rates to gradually rise, remaining below 4 percent for the first half of 2016, before inching higher and closing the year around 4.4 percent. On balance, the downside risks to this forecast are greater than the upside—there’s a substantial likelihood that rates could remain below 4 percent throughout 2016. The path of rates depends on global economic conditions. Many countries have negative interest rates. In Japan the 10-year government bond reached a record low of negative 0.1 percent in March. Across Europe many countries’ sovereign bond yields also have negative interest rates, some on maturities out to 10 years. Exhibit 1 compares sovereign bond yields for 2-year and 10-year maturities across several advanced economies. While we think there’s little chance the U.S. will have negative rates any time soon, negative rates abroad keep the lid on long-term rates in the U.S. We think the outlook for global growth will improve—or at least stabilize—throughout the balance of this year and the downward pressure on U.S. rates will abate. More good news on the domestic U.S. economy, and a return to tightening by the Federal Reserve, will push rates higher later this year. The Fed is likely to only raise rates twice this year, which will slow the pace of interest rate increases.