We economists have a secret rule when making forecasts on interest rates: give a rate or give a date, but never give both at the same time because you are going to be wrong. 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 conventional mortgage interest rates for the remainder of 2018 and 2019. For 2019, Fannie comes in at 4.7 percent while the MBA is on the high-end at 5.4 percent and Freddie Mac pretty much in the middle at 5.1 percent. My forecast for 2019 is the in the mid-5.5 to 5.7 percent range.
Refinance lending volume expectation is most volatile going forward when compared to purchase lending, with an average decline of 25.8 percent in 2018 versus 2017, and an additional 12.7 percent drop in 2019 from the prior year. Total refinance lending volumes are expected to decline from an average $642.1 billion in 2017 to $476.4 billion in 2018 and down to $415.7 billion in 2019.
The consensus for purchase lending volumes are shown in the next table. Purchase lending is expected to rise 3.6 percent and 5.6 percent in 2018 and 2019, respectively. Freddie Mac remains 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.
The latest housing sales forecast as of May 2018 from Fannie-Freddie-MBA are shown in the following table. My current model for a 1.96 percent gain in 2018 is still unchanged.
While the recent hiccup in housing sales is showing a decline in the expected growth in purchase lending, rising home values still support increased purchase transaction volume. As rates continue to rise, refinance volumes will correspondingly fall. The real housing sales season is May through August, so the jury is still out.