Residential Refinance and Purchase Lending Forecast Update — November 2017

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.  Two of the three have just released quarterly data for 2018, so the next version of this report (December 2017) should span 2017-2019.

Driving these forecasts are the latest expectations are 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, 2018 is very diverse.   The first table shows the latest interest rate forecast as of November 2017.   MBA expects a greater rate in 2018, while Fannie Mae stays the course with minimal change.

To show the changes in forecast volumes, the following table shows the quarterly forecasts by Fannie-Freddie-MBA comparing November 2017 to December 2016, except for Freddie Mac which as of December 2016 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 35.4 percent in 2017 versus 2016, and an additional 25.5 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 $466 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 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 8.7 percent and 6.1 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 $1.77 trillion in 2017 and $1.68 trillion in 2018 – the decline all fueled by plunging refis.

While the outlook for purchase lending looks positive, refis continue on a southerly path given rising interest rate expectations – except for Fannie Mae, which sees little rate rise at least through 2018 at this time.

Ted

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