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. Driving these lending forecasts is the expectation of future interest rates. As the following table shows, there is not perfect agreement on 30-year convention mortgage interest rates for the remainder of 2018 and 2019. For 2019, Fannie is the estimator with a yearly average of 4.5 percent, the MBA on the high-end at 5.4 percent and Freddie Mac pretty much in the middle at 5.1 percent.
Refinance lending volume expectation is most volatile going forward when compared to purchase lending, with an average decline of 29.8 percent in 2018 versus 2017, and an additional 10.5 percent drop in 2019 from the prior year. Total refinance lending volumes are expected to decline from an average $655.1 billion in 2017 to $459.6 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 6.0 percent and 5.9 percent in 2018 and 2019, respectively. Note that Freddie Mac is much more optimistic in home purchase lending in Q1 2019.
Total residential lending volumes (purchase plus refi) are now expected to drop from $1.80 trillion in 2017 to $1.67 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 is expected to continue to trend upwards.