Existing home sales continue to mimic a slow-leaking tire this year, as sales have fallen short in four of the eight months thus far in 2018 versus a year ago. Year-to-date sales are down 1.23 percent. Though sales are down, rising prices are compensating lending with the median up 5.1 percent compared to the same period a year ago (based on 12-month moving averages of the monthly median price). As a result, total residential purchase lending (including new home sales) is now expected to be up 2.8 percent in 2018 Vs 2017 based on the average forecasts from Fannie Mae, Freddie Mac and the MBA as of September 2018.
The refinance lending segment is leaking but at a much greater rate due to rising interest rates. If tire terminology, refinance lending just had a blowout. The following table shows the latest forecasts for 30-year, fixed-rate conventional residential loans. There is little difference in interest rate expectations for this year ranging from 4.5 to 4.7 percent. That level of agreement does not carry into next year, however. For 2019, Fannie Mae comes in at 4.6 percent while the MBA is on the high-end at 5.2 percent and Freddie Mac remains pretty much in the middle at 5.1 percent. My forecast for 2019 remains in 5.2 to 5.7 percent range.
Refinance lending volume expectation remains the most volatile going forward compared to purchase lending, with an average decline of 26.6 percent in 2018 versus 2017, and an additional 11.7 percent drop in 2019 from the prior year. Total refinance lending volumes are expected to decline from an average $637.4 billion in 2017 to $467.9 billion in 2018 and down to $413.3 billion in 2019. The all-time record refinance lending volume was reached in 2003 at $2.598 trillion. Forecast refinance lending this year will be the lowest level seen since 2000 which troughed at $124.5 billion.
Forecast purchase lending volumes are shown in the next table. Again, understand that the increase in purchase lending for 2018 is a function of rising prices and not increased sales. It is my expectation that price increases will cool as interest rates rise as the current pace is unsustainable given income growth. The average hourly income rate in the U.S. has increased just 2.9 percent in the past 12-months and 13.1 percent in the past five years while median price jumped 5.1 percent and 34.1 percent for the same time periods, respectively.
Total residential lending volumes (purchase plus refi) are now expected to drop from $1.78 trillion in 2017 to $1.64 trillion in 2018 – the 6.9 percent decline primarily fueled by shrinking refis.
The latest housing sales forecasts as of September 2018 from Fannie-Freddie-MBA are shown in the following table. I have changed my initial existing home sales forecast for 2018 from a 1.96 percent gain in 2018 to a 1.4 percent declined compared to 2017.
The slow leak in existing home sales continues, but it is so slow top speeds are still possible, but the dash warning light remains lit.