A Look at Refinance and Purchase Lending Expectations for 2016

Transaction volume is the backbone for real estate professionals. Sellers selling, buyers buying — and for those impacted by refinancing – borrowers with mortgage loans refinancing are key to the livelihoods of an array of real estate professionals. Except for all-cash buyers, lending is the key metric in showing past and future transaction volumes.

Lending for residential purchases, at least historically, has been more varied than the best of all roller coaster rides. The following graph shows the volatility of total residential lending since 1990 as reported by Fannie Mae. Also included is the preliminary volume for 2015 plus the forecast for 2016 as of January 2016 (also by Fannie Mae). Note that residential lending volume from 1995 to 2003 rose a phenomenal 488 percent. Just like gravity, however, what goes up must eventually come down. When compared to the all-time record 2003 peak, 2016 is forecast to be down almost 63 percent.

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While history is nice to read, it’s the future that is most important. The following table shows the total lending volume levels annually for 2014 and 2015 plus the forecast for 2016. These data include the most current estimates from Fannie Mae, Freddie Mac and the MBA. Though total residential lending was up nicely from 2014 to 2015, the average forecast from the three portends an 11.3 percent total decline in 2016 when compared to 2015.

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That decline is not a one-size-fits-all across the real estate services fields, however.

First, the good news. For those involved in actual purchase transactions, your business environment will improve in 2016. The following table shows the average estimate from the three sources for total purchase lending by quarter. Overall, 2016 is expected to be up 10.4 percent. This is a function of expectations for both more sales and also higher prices. Note the surge in residential purchase lending volume in Q4 2016 – up 20.2 percent from a year earlier. This indicates an expectation of strong growth flowing into 2017. Even more good news.

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Now the bad news. For those that rely on refinance lending volumes, 2016 is not looking pretty at all. Ugly is a more appropriate word, perhaps. The following table shows total refinance lending volumes quarterly since 2014 through 2016. For the year, total refinance lending volumes are forecast to be down 36.4 percent compared to 2015. Worse, that downward trend is expected to accelerate into Q4 2016, declining by almost 42 percent versus a year earlier.

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Once again, changes are happening in real estate.

Tighten your seat belt. The ride continues.

As for the historical perspective, I defer to a great quote from the early 1970s. “(Sometimes), it appears that history is costing more than it’s worth.”

Ted

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