Refinance outlook lifts Fannie Mae's origination forecast
With interest rates expected to stay low while wages and the overall economy grow in conjunction, Fannie Mae again boosted its single-family mortgage origination outlook for 2019, 2020 and 2021.
Compared to projections from the end of 2019, the government-sponsored enterprise's mortgage production estimate for last year was up $36 billion. Its estimates for 2020 and 2021 also were up by $17 billion and $13 billion, respectively. Most of the increases are to the refinance share of loan volume. Fannie now projects annual originations to total over $2.18 trillion in 2019, $2.06 trillion in 2020 and $1.97 trillion in 2021, huge jumps from the year-ago outlook.
Despite the increases in projected refinance volume and the latest geopolitical tensions, January's estimate for the average 30-year fixed mortgage rate remained at 3.9% for 2019, and inched up 0.1% to 3.7% for 2020 and 2021.
"The easy part to forecast is purchases. The refinance side is much more sensitive to interest rates, but it's also sensitive to how interest rates impact the probability that people will act or the way in which they will act," Doug Duncan, Fannie Mae's senior vice president and chief economist, said in an interview. "There's like 10 different things that can happen and the combination in which they happen can go either direction. If the Fed said they're not going to make any more cuts — and they've been very explicit they don't intend to — and if the rates move up a tenth, there may be a cohort of people who get in the refinance market with the expectation rates won't drop further."
Fannie also increased its projections for housing starts. The new outlook shows 1.28 million in 2019, 1.36 million in 2020 and 1.42 million in 2021.
"Strong labor markets, rising wages and improved household balance sheets offer consumer spending upside potential, including the ability to withstand minor economic disruptions," Duncan said in a press release. "While we expect housing to regain its place as an economic-growth driver after a period of relative sluggishness, we recognize that the problems of affordability and inventory are likely to persist for the forecast horizon. Homebuilders have begun to accelerate the pace of single-family construction, including in the much-needed affordable space, but supply constraints still exist. In many areas, that demand-supply imbalance continues to contribute to entry-level home prices outpacing wage gains, exacerbating the affordability challenge."