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Mortgage originations set for a record year, Fannie Mae predicts

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Fannie Mae now projects 2020 to be the best year ever for mortgage originations, based on low rates driving refinancings and stronger-than-expected new and existing home sales activity.

The latest forecast calls for $3.87 trillion in mortgage originations this year, the best in the 32 years that Fannie Mae has been tracking this data. In August, Fannie Mae predicted $3.41 trillion of volume.

"As expected, the pace of economic recovery is slowing, but housing remains highly supportive," said Fannie Mae Chief Economist Doug Duncan in a press release. "The Federal Reserve has made clear that it has no intention of raising interest rates in the near future, and, as mortgage spreads continue compressing, households are seizing the opportunity to refinance their existing mortgages.”

Duncan's view of the overall U.S. economy was likewise more positive, with his forecast of a 2.6% contraction in real gross domestic product; last month's outlook was for a 3.1% contraction.

The new forecast now calls for $1.07 trillion of originations in the third quarter, which would make two quarters in a row of over $1 trillion in production.

Refinance volume is now projected to be $659 billion for the third quarter, up over $200 billion from last month's forecast of $449 billion. In the fourth quarter, refis could total $440 billion, up from the prior prediction of $298 billion.

Duncan's forecast came out before this week's Mortgage Bankers Association application survey data, which indicated a possible slowdown in potential refi activity.

While his outlook for purchase volume was little changed for the third quarter, Duncan now sees these originations totaling $367 billion in the fourth quarter; a month ago he projected $317 billion.

Total home sales are now expected to be higher on a year-over-year basis, up 1.3% from 2019. Duncan's last forecast called for a 3.9% decline.

The biggest share gain will be seen in new home sales, now predicted to rise by 13.9%. A month ago, he saw a slight 1% gain.

Backing that outlook is a 6.56% month-to-month and 2.2% annual gain in August in single-family construction authorizations, according to BuildFax.

"Six months into the pandemic, we're seeing some clear trends emerging as it relates to home-buying behaviors," Jonathan Kanarek, BuildFax managing director, said in its monthly Housing Health Report. "Demand is still strong, with housing activity growing despite the persisting shortage of housing stock and the wavering economy."

Kanarek noted that more potential buyers are looking for greater square footage today.

"We're closely monitoring how these changes in homebuyer behavior are likely to inform homebuilding trends in the next few years as well as how existing homeowners choose to remodel or otherwise upgrade their existing homes," he added.

Existing home sales are now expected to remain flat compared with last year, Fannie Mae said. In August, Duncan predicted a 4.5% drop.

For 2021, Duncan increased his forecast slightly, to $2.57 trillion from $2.48 trillion. He now sees purchases making up 58% of next year's market and refis, 42%. His August forecast called for a 55%-45% split in favor of purchases.

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Originations Purchase Refinance Fannie Mae Mortgage rates forecast BuildFax Homebuilders Economy