2018 & 2019 Refinance and Purchase Lending Forecasts as of January 2018

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 2017 to 2019.  Freddie Mac did not breakout the quarterly forecast for either refinance or purchase lending volumes for 2019.  They do provide an annual estimate which is included in the yearly 2019 forecast.

Driving these forecasts are the latest expectations for the 30-year residential conventional fixed-rate loan interest rates.  The following table shows their latest forecasts.   While there is complete agreement on history (2017 is identical among the three), they diverge in 2018 and even more in 2019 from low to high.   As of now, Fannie Mae is expecting little budge at all, rising just 0.1 percent in 2019.  Both Freddie Mac and the MBA expect rising rates, albeit MBA at a more rapid pace.  My own forecast calls for a range from 4.7 to 5.3 percent by year end in 2018 and another 60 to 70 basis points in 2019.

Refinance lending volume expectation is most volatile going forward when compared to purchase lending, with an average decline of 27.5 percent in 2018 versus 2017, and an additional 10.6 percent drop in 2019 from the prior year.  Total refinance lending volumes are expected to decline from an average $644.5 billion in 2017 to $467.2 billion in 2018.

A combination of rising home prices and an increase in the number of sales sees residential purchase lending volumes expanding from the prior year in 2018 and 2019.  The consensus for purchase lending volumes are shown in the next table.   Purchase lending is expected to rise 7.4 percent and 5.0 percent in 2018 and 2019, respectively.

Total residential lending volumes (purchase plus refi) are now expected to drop from $1.79 trillion in 2017 to $1.69 trillion in 2018 – the decline all fueled by plunging refis.

All told, real estate, despite the expectation of rising interest rates negatively impacting refinance volumes, purchase transaction volume I expect to trend upwards.

Ted

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