Freddie Mac's long-time chief economist Frank Nothaft departed some months ago to take the same role at CoreLogic and that vacancy at the mortgage company has now been filled by Sean Becketti.  The change of command is apparent in the new look of the company's monthly forecast.

Formerly called U.S. Economic and Housing Market Outlook, it has re-emerged as Insight and Outlook and, in this issue at least, it is less a straightforward summary and commentary on the month's economic and housing news and more a multi-topic magazine.

While the forecast was still a prominent feature - cast in the context of whether the country is ready for a Federal Reserve rate increase - as is a recap of the month's housing indicators, Insight and Outlook also takes on two separate issues; how to determine if house prices are becoming 'too darn high' and a look at Freddie's new 97 percent mortgages and layered risk. 

The broader 'Outlook' portion is titled: "Are We There Yet?"  Indeed, that is the question Freddie Mac's economists say that the market keeps asking the Federal Reserve.  After six years of what they call "very tepid expansion," is it time to raise interest rates?   They clearly do not think it is.

The Fed has consistently stated it is waiting for evidence that labor markets have recovered and inflation can at least be headed toward its 2 percent target before it raises short term rates.  Freddie Mac looks at the current state of each and finds them lacking. 

Unemployment is well below the 10 percent level it reached in October 2009 and at the current 5.3 percent is within a rounding error of what the Fed considers full employment.  However Freddie Mac maintains this is less because of a growth in employment than an indication of a falling rate of labor participation.  That rate has been shrinking for the last 15 years but tripled during the expansion.  Freddie Mac concludes that "Weak employment combined with stagnant wage growth suggests the Fed should be cautious in tightening monetary policy."

Inflation is also running below the target rate and may be poised to drop even lower.  Core inflation, a measure which excludes volatile food and energy prices, has not reached 2 percent on an annual basis since 2008.  Core personal consumption expenditures measured by the PCE price index have recently fallen to around 1.2 percent and recent global events may strengthen the dollar even further, putting more downward pressure on U.S. inflation.

These triggers, Freddie Mac says, don't present a compelling reason to raise rates any time soon and that outlook doesn't change when other indicators are included in the analysis.  "In our opinion, we're not there yet," the economists say.  "The International Monetary Fund appears to agree with us-in June it cautioned the Fed against raising rates too soon. Nonetheless remarks by Janet Yellen and some (but not all) of the Fed governors and presidents have persuaded the market that Fed may nonetheless act in September. In any event, we expect the initial rate increases to be very cautious and more symbolic than impactful."

They also regard housing as "a good news/bad news story."  Home sales are having the best year since 2007 and increasing home prices are chipping away at negative equity, housing starts are up and builder confidence hit a 10 year high in August.  But despite all of this, they say, "overall housing activity remains week compared to historical norms."

Under bad news they include uneven access to mortgages across income groups, affordability barriers to homeownership, especially in acquiring money for a down payment given rising prices, and increasing rents which often consume a disproportionate share of income, further increasing the difficulty of amassing a downpayment.

Freddie Mac is still expecting growth to pick up in the second half of the year and that long-term interest rates, including mortgage rates, will increase only gradually whether or not the Fed acts this year.  They made several changes to their forecast since the previous month, most significant is an upward revision to predictions for mortgage originations this year and next, the second month in a row they have revised these projections.  Because of strong refinance activity and home sales the estimate for mortgage originations in 2015 has been raised to $1.45 trillion from $1.35 trillion and for 2016 to 1.3 trillion from 1.275 trillion.  The expected refinance share was revised upward from 43 to 46 percent.  They also increased their projection for home sales in 2015 from 5.6 million to 5.73 million units.