In its Economic and Housing Outlook for April Freddie Mac's economists point out that the spring homebuying season has become familiar territory.  And not in a good way.  For the third year in a row the nation entered the New Year "with great expectations and optimism" but was almost immediately battered with brutal winter weather and an economic slowdown.

Despite the threepeat in the first quarter of 2015, Freddie Mac's chief economist Len Kiefer, says he believes the remainder of the year should bring economic growth solid enough for robust job gains and accelerating housing markets.  While the jobs report in March was disappointing the acceleration in housing is already underway as evidenced by a 3 percentage point year-over-year uptick in purchase mortgage applications.

Freddie Mac expects the positive momentum should continue until early fall when rising interest rates will slow housing markets just as they did in 2013.  But by then the bulk of the year's sales will be booked and more jobs and higher wages will offset the drop in affordability.

Freddie Mac expects this to be the best year for home sales since 2007 and this is already reflected in the first two month's home sales (although they were lower than expected) and upwardly trending pending sales and purchase mortgage application volume.

The weak March jobs report increases the likelihood that the Fed will again delay raising rates.  Freddie Mac's forecast calls for mortgage rates to drift slightly higher for a few months, rising more rapidly near September when the Fed will probably begin the increases. By the end of the year the company estimates that the 30-year fixed-rate mortgage will be at 4.3 percent.

One key housing issue over the next two years will be the lack of supply of homes both for sale and rent. Despite a robust pace of multifamily construction, over 300,000 starts in each of the last two years, declines in the homeownership rate, and the conversion of millions of single-unit properties into rentals, supply has not met increasing demand.    

Rental vacancy rates are at the lowest levels since 1994. With robust job growth new household formations are accelerating, and all the gains have been in renter households.

On the for-sale side, the relative oversupply of inventory has changed quickly to an undersupply but one that is not geographically consistent.  Many metro areas have seen strong job growth and population increases and those as facing shortages of homes for sale.

The lack of inventory is also arising in part from continuing negative equity which restricts the ability of potential sellers to do so.  CoreLogic estimates that about 5.4 million properties, or 11 percent of those with a mortgage, remain under water.

Inventory is also lacking because housing construction is well below a sustainable pace.  While construction has rebounded off historic 2011 lows, from 2010 through 2014 3.5 million housing units were completed while the population expanded by 9.5 and 4.5 million new households were formed.

Freddie Mac also notes a demographic mismatch; the nation's population distribution looks like a lop-sided barbell with the large cohorts of baby boomer and millennials sandwiching the relatively small Gen X.  It is typical for households to begin as renters, buy a first home in their mid-to-late 20s and then trade up and down in terms of square footage to match their housing needs until, at retirement age, they downsize, ceding larger properties to the next generation which has outgrown their starter homes.

This traditional cycle has been disrupted.  Millennials, beset by the economy, have delayed their entry into homeownership (perhaps a good thing as, had they held to historic patterns inventory shortages would be even worse.) Then there are not enough Gen Xers to take all of the homes from the boomers (and millennials neither want nor are able to take them at this point). Next, many boomers are looking to age-in-place and don't intend to leave their homes.

Freddie Mac says that eventually the markets will stabilize and inventory issues will resolve over time.  Prices will continue to rise, they forecast increases of 4.0 and 3.5 percent in 2015 and 2016, lifting more homes into positive equity.  Housing starts will rise by about 15 percent this year and 22 percent in 2016, and as Millennials see improved labor markets they will move into homeownership.

However Freddie Mac's economists caution that the demand isn't fully there yet from Millennials and the current rate of economic growth continues to only support a gradual recovery.  The bottom line?  They expect that a return to a stable range of activity in the housing markets is still a couple of years away.

Freddie Mac has revised several of its earlier forecasts - the second time they have done this since the beginning of the year.  The cold winter has caused them to downgrade their projection for housing starts slightly to 1.15 million but slower home sales than expected in the first quarter should drive up demand, boosting sales in succeeding quarters.  Thus their earlier forecast of 5.6 homes sales this year still stands.

The projected 4.0 percent increase in home prices will also drive up mortgage origination volume by 4 percent to $1.3 trillion.  Due to continued low rates the share of refinancing has been upgraded to 41 percent.