Residential Purchase and Refinance Lending Volume Forecast Update — June 2017

Each month, Fannie Mae, Freddie Mac and the MBA update their quarterly and annual forecasts for residential lending volumes – for both refinance and purchase transactions. The forecasts span a three-year period, currently from 2016 to 2018. The lagging year (2016 at this time) often changes in the 12-months following year-end as added data become available — such as Home Mortgage Disclosure Data (HMDA).

Driving these forecasts are their latest expectations on the 30-year residential conventional fixed-rate loan interest rates. The following table shows their latest forecasts. While there is a common consensus for 2016 (historical) and 2017, note the large divergence for Fannie Mae in 2018, which is hugging the bottom of the 4 percent range with Freddie Mac and the MBA towards the upper end of that interval.

6-24-17a table1

Refinance lending volume expectation is most volatile going forward when compared to purchase lending, with an average decline of 43 percent in 2017 versus 2016, and an additional 27.5 percent drop in 2018 from the prior year. Total refinance lending volumes are expected to decline from an average $962.6 billion in 2016 to less than $400 billion in 2018.

6-24-17a table2

Residential purchase lending volumes are expected to increase from the prior year in 2017 and 2018. Driving this are the forecasts by the three of increases in the both the number of home sales and prices. See prior Jones on Real Estate Blog for the latest summary of housing sales and price expectations. The consensus for purchase lending volumes are shown in the next table. Purchase lending is expected to rise 5.9 percent and 5.5 percent in 2017 and 2018, respectively.

6-24-17a table3

Total residential lending volumes (purchase plus refi) are now expected to drop from $2.0 trillion in 2016 to less than $1.7 trillion in 2017 and sub $1.6 trillion in 2018 – the decline all fueled by plunging refis.

6-24-17a table4

While the outlook for purchase lending looks positive, refis are heading south at a rapid pace given rising interest rate expectations.

Ted

Comments

  1. Keith Gumbinger

    The difference in the long-range interest rate forecast from the three entities is very interesting. Fannie reckons about a half percentage point rise from 2016 to 2018; Freddie, a full percentage point rise, and the MBA, a 1.3 percent increase.

    Given how mortgage rates have performed over the last few years — generally running well below annual forecasts — it remains unclear if mortgage rates can rise by much over time, even with an active Federal Reserve and a slowly-firming global economy. Here in mid-2017, mortgage rates remain within shouting distance of record lows and have been stubborn about rising much.

    Refinance volume has already been and may continue to be a little better than expected. Rising home prices are building equity stakes quickly in large swaths of the country, and mortgages will remain the consumer borrowing option with the lowest available interest rates and potential tax deductibility, so cash-out refinancing should be expected to pick up at least some of the slack caused by diminished rate-and-term refinancing.

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