Residential Lending Forecast 2019 & 2020 as of July 2019

As the Federal Reserve’s Open Market Committee prepares to meet today, interest rates and where they are likely going are making headlines.  Interest rates make up part of the throttle linkage for residential lending.  Shown in the table is the latest forecast for 30-year conventional mortgage rates as reported by Fannie Mae, Freddie Mac and the Mortgage Bankers Association as of July 2019.  None see residential mortgage rates exceeding 4.1 percent between now and 2021 on an annualized basis.

The 30-year conventional mortgage rate averaged 5.24 percent weekly since 2000, peaked at 8.64 percent the seven days ending May 18, 2000 and bottomed at 3.31 percent the seven days ending November 21, 2012, based on Freddie Mac’s weekly Primary Mortgage Market Survey.  The median weekly interest rate year-to-date was 4.14 percent compared to 4.54 percent in all of 2018.  The rate ending the seven days on July 25, 2019 was 3.75 percent.

The following figure shows the weekly Primary Mortgage Market Survey from Freddie Mac, with the 30-year, fixed-rate conventional averaging 3.77 percent in the past four weeks.

Declining rates thus far this year have resulted in an increase in the forecast for refinance lending volume in 2019, rising from $474.0 billion in 2018 to $564.3 billion in 2019 – a gain of 19.1 percent.  Refinance volume is expected to drop by 21.0 percent to $446.0 billion in 2020.  The all-time record refinance lending volume was reached in 2003 at $2.598 trillion.

Residential purchase lending volumes are expected to rise 4.2 percent this year and an additional 3.0 percent next year.  Current forecast is for $1.213.7 trillion in purchase lending in 2019, rising to $1.250 trillion in in 2020.

Total residential lending volume (purchase plus refi) is now expected to rise 8.5 percent in 2019 driven by both growing purchase and refinance activity.    Rising rates in 2020, however, call for a decline in total lending by 4.6 percent as refinance activity retracts.

This last graph shows the historical perspective of residential lending and interest rates since 2000.

Rates remain highly attractive for prospective homebuyers and offer a great opportunity for current  borrowers to refinance higher-rate mortgages today.  Countering that, however, are increasing home prices which are dampening sales as affordability, despite low rates, continues as a major hurdle for many.


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