Residential interest rates have surprised almost everyone dropping to an almost three-year low and are driving an unanticipated refinance boom. Expected refinance lending volume for 2019 commenced the year at $404.0 billion and has rocketed to $715.3 billion based on the latest forecasts from Fannie Mae, Freddie Mac and the Mortgage Bankers Association. The impact of favorable rates has yet to be seen in increased housing sales volume, however.
The table shows the latest forecast for 30-year conventional mortgage rates as reported by Fannie Mae, Freddie Mac and the Mortgage Bankers Association as of August 2019. None see residential mortgage rates exceeding 4.1 percent between now and 2021 on an annualized basis. The 30-year fixed-rate conventional mortgage rate averaged 3.58 percent the seven days ending August 29 according to Freddie Mac’s Primary Mortgage Market Survey.
Refinance lending volume history from 2018 and forecast through 2020 are shown in the following table. The forecast sees refinance lending volume up 50.9 percent in 2019 then dropping 28.9 percent in 2020 as rates rise.
Residential purchase lending volumes are expected to rise 3.9 percent this year and a modest 2.6 percent next year. Current forecast is for $1.210 trillion in purchase lending in 2019, rising to $1.241 trillion in in 2020.
Total residential lending volume (purchase plus refi) is now expected to increase 17.5 percent in 2019 driven by both growing purchase and refinance activity. Rising interest rates in 2020, however, call for a decline in total lending by 9.1 percent as refinance activity retracts.
Summary – Combined Fannie Mae-Freddie Mac-Mortgage Bankers Association Housing Sales Forecast August 2019
Existing Home Sales – -Change from Prior Year
-0.2 Percent 2019, Median Price Up 3.9 Percent
+1.7 Percent 2020, Median Price Up 2.7 Percent
New Home Sales – Change from Prior Year
+5.8 Percent 2019, Median Price Up 0.9 Percent
+0.6 Percent 2020, Median Price Up 3.3 Percent
Ted’s Existing Home Sales Forecast
-2.0 Percent 2019, Median Price Up 2.4 to 3.0 Percent
Existing home sales were down 2.9 percent in the first seven months of this year compared to 2018. The forecasts from Fannie Mae, Freddie Mac and the Mortgage Bankers Association, however, are more optimistic with expectations for the total year ranging from a decline of 0.7 percent to a 0.3 percent gain. That implies the assumption of an uptick in the sales pace for the remainder of 2019.
Existing & New Home Sales
The following table shows expectations based on the August 2019 forecasts for existing home sales.
Median Home Prices
Strong median home price increases seen in recent years are — with some local markets actually seeing price declines. The current outlook is for median existing home prices to rise 3.9 percent in 2019 and 2.7 percent in 2020. New home prices are expected to increase a minimal 0.9 percent in 2019 and 3.3 percent in 2020. The slower price gain in new home prices in 2019 is due to the increased offering of entry-level new-home construction. In 2013 (when there was little if any new entry-level home construction) the typical new home cost almost 39 percent more than existing properties. Today that premium has shrunk to slightly less than 20 percent.
My expectation for existing home sales is a 2 percent decline in 2019 compared to 2018, with the median price rising from 2.4 to 3.0 percent. Affordability is the culprit as home values continue to escalate at a pace greater that incomes.