After the housing market’s best year in a decade, Freddie Mac’s January 2017 outlook considers the uncertainty on the future as the year begins.
“The U.S. economy is now in its eighth year of expansion and the housing market is coming off its best year in a decade. Prospects remain good for future growth,” Freddie Mac Chief Economist Sean Becketti said in a press release. “However, uncertainty weighs on our outlook for 2017 and 2018.”
The outlook stated that expectations about economic policy, particularly fiscal policy, shifted after the election. “While we still do not know all the parameters of the fiscal policy changes, the assumption is that an expansionary policy will boost both growth and inflation over the next two years and that corporate tax reform will increase long-run potential economic growth by about two-tenths of a percentage point,” the report stated.
Among the tax proposals from the new administration are moves to increase the standard deduction, which Freddie said will reduce the incentive for households to itemize deductions and use the mortgage interest deduction in their taxes.
Mortgage rates are expected to rise during the year, “dampening housing and mortgage market activity,” the outlook stated. “With rising interest rates, we expect mortgage origination volumes to decline in 2017 relative to 2016 and origination volume to stabilize at a lower level in 2018.”
On the positive side, home equity is up to about $13 trillion through September 2016, up from about $7 trillion in the second quarter of 2011.
“We must grapple with uncertainty about fiscal policy, foreign investments in U.S. real estate, and the size of the mortgage market,” Becketti said. “Among the many uncertainties we highlighted, however, a smaller mortgage market in 2017 than 2016 seems most certain.”