As we economists say, “forecasting is difficult, especially the future.” Fortunately, Fannie Mae, Freddie Mac and the MBA update their quarterly and annual forecasts monthly for residential lending volumes – both refinance and purchase transactions. The forecasts typically 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 the MBA in 2018, which is right at the top of the 4 percent range.
To show the changes in forecast volumes, the following table shows the quarterly forecasts by Fannie-Freddie-MBA comparing July 2017 to December 2016. In December 2016 Freddie Mac had not yet released their 2018 expectations – hence the missing data.
Refinance lending volume expectation is most volatile going forward when compared to purchase lending, with an average decline of 41.9 percent in 2017 versus 2016, and an additional 27.9 percent drop in 2018 from the prior year. Total refinance lending volumes are expected to decline from an average $969.2 billion in 2016 to slightly more than $400 billion in 2018.
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. The consensus for purchase lending volumes are shown in the next table. Purchase lending is expected to rise 7.2 percent and 6.5 percent in 2017 and 2018, respectively.
Total residential lending volumes (purchase plus refi) are now expected to drop from $2.0 trillion in 2016 to $1.7 trillion in 2017 and $1.6 trillion in 2018 – the decline all fueled by plunging refis.
While the outlook for purchase lending looks positive, refis continue on a southerly path at a rapid pace given rising interest rate expectations.