Each month Fannie Mae, Freddie Mac and the MBA forecast residential purchase and refinance lending volumes years in advance on a quarterly basis. While these forecasts typically do not initially agree, over time they converge to a consensus.
These lending volumes impact any and sometimes all real estate related service providers in their incomes ranging from appraisers, inspectors, surveyors, lenders, title insurers and real estate agents. So where is lending heading in 2017? Following is the January 2017 summary of the current forecast residential lending volumes.
Residential Refinance Lending
Rising interest rates will negatively impact the refinance lending volumes as time progresses. The following table shows that while residential refinance lending volume was up an estimated 17.1 percent in 2016 versus 2015, it is currently expected to plunge 49 percent in 2017. As 2017 progresses, the rate of decline in refinance lending volume is expected to accelerate, with refinance lending forecast to be 62.1 percent less in Q4 2017 versus a year earlier. For refinance lenders, that equates to workforce reductions as 2017 progresses. The same is true for title insurance and other refinance sensitive service providers.
Purchase Lending Volume
Purchase lending volume is a function of both the number of sales and home prices. My expectation is to see both sales and prices increases in 2017, but at a declining rate from the prior 12 months. My current forecast for housing sales is to ratchet up 2.2 percent in 2017 with median home prices gaining 3.6 percent (versus the 5.51 percent median price rise of 2016). Despite rising interest rates and slowing housing sales, total purchase volume is expected to be up 5.0 percent when compared to 2016.
Total Residential Lending Volume
Despite growing prices and residential sales volume, total lending volume is forecast to drop from $1.94 trillion in 2016 to drop 20.5 percent in 2017 to $1.54 trillion.
Do these forecasts change much as time progresses? In a 15 month in recent years total lending volume forecast almost doubled — a function of the overall economy and changes in interest rates.
Things change. But other than declining refinance volumes, there is some good news in the current forecasts.