Existing home sales continue a downward decent. Year-to-date sales are down 2.12 percent. Though sales are down, rising prices are compensating lending with the median up 4.9 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 down 5.2 percent in 2018 Vs 2017 based on the average forecasts from Fannie Mae, Freddie Mac and the MBA as of November 2018.
The refinance lending segment is shrinking but at a much greater rate due to rising interest rates. If refinance lending was a tire, it just experienced a blowout at relatively high speed. 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 4.6 to 4.9 percent. That level of agreement carries into next year ranging from 4.9 percent to 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 25.8 percent in 2018 versus 2017, and an additional 15.3 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 $472.7 billion in 2018 and down to $400.3 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 and 2019 is a function of rising prices and not increased sales. Purchase lending is forecast to be up 6.4 percent in 2018 and essentially flat in 2019 (a miniscule gain expectation now of 0.3 percent).
Total residential lending volumes (purchase plus refi) are now expected to drop from $1.78 trillion in 2017 to $1.69 trillion in 2018 with the 5.2 percent decline fueled by shrinking refis. The expectation now for 2019 is an added 4.1 percent drop in total residential lending to $1.62 trillion.
The latest housing sales forecasts as of November 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 2.5 percent declined compared to 2017 with approximately another 1 percent decline in 2019.
If you are looking for a sure-thing winner, housing is not on that list today. Surging demographics, however, point to high housing demand (including rentals) in the coming decade, as Freddie Mac is now forecasting 20 million household formations by young adults in the coming 10 years. Rising interest rates and home prices are impacting overall affordability today, placing a headwind on both home sales and price appreciation in 2019.