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. Since 2018 is almost one-half over there is not too much deviation in interest rate expectations for the year, averaging from 4.5 to 4.9 percent. There is not, however, perfect agreement on 30-year conventional mortgage interest rates for 2019. For 2019, Fannie comes in at 4.6 percent while the MBA is on the high-end at 5.3 percent and Freddie Mac pretty much in the middle at 5.1 percent. My forecast for 2019 is the in the 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 25.6 percent in 2018 versus 2017, and an additional 13.2 percent drop in 2019 from the prior year. Total refinance lending volumes are expected to decline from an average $645.6 billion in 2017 to $480.4 billion in 2018 and down to $416.9 billion in 2019.
Forecast purchase lending volumes are shown in the next table. Purchase lending is expected to rise 4.5 percent and 6.0 percent in 2018 and 2019, respectively. Freddie Mac continues to be much more optimistic in home purchase lending in Q1 2019 than the MBA or Fannie Mae.
Total residential lending volumes (purchase plus refi) are now expected to drop from $1.80 trillion in 2017 to $1.69 trillion in 2018 – the 6.3 percent decline all fueled by shrinking refis.
The latest housing sales forecasts as of June 2018 from Fannie-Freddie-MBA are shown in the following table. I have changed my original existing home sales forecast for 2018 from a 1.96 percent gain in 2018 to a 0.8 percent decline compared to 2017.
Existing home sales have stuttered thus far in 2018 – but only slightly. Rising prices are offsetting the decline in home sales resulting in the expectation for growth in purchase lending, albeit slight. As rates continue to rise, refinance volumes will correspondingly fall.