Written By: Joel Palmer, Op-Ed Writer
Mortgage processors and underwriters can expect 2018 to bring a slight increase in purchase loan volume, a considerable reduction in refinance activity, and an influx of home equity loan applications.
According to the latest Freddie Mac Economic & Housing Research Outlook, “The economic environment remains favorable for housing and mortgage markets. For several years, we have had moderate economic growth of about 2 percent a year, solid job gains and low mortgage interest rates. We forecast those conditions to persist into next year.”
Highlights of the September outlook report include:
• A forecast of 2 percent growth in total home sales (which includes new and existing home sales) from 2017 to 2018. Sales of new homes will drive much of that growth.
• A projection that refinances will only account for 25 percent of overall mortgage activity in 2018, which would be the lowest annual refinance share since 1990.
• A warning that existing home sales will not increase much going forward. Short-term sales will be limited by a lack of inventory. Long-term trends such as the aging of the population and declining mobility will also restrain sales growth.
• A larger share of refinance activity will come from homeowners using it to turn home equity into cash, especially if mortgage rates rise or remain flat. Rising home values have increased the amount of equity to $13.7 trillion in the first quarter of 2017 available to existing homeowners, which many will use to pay down debt or make home improvements.
• An estimate of 4.9 percent growth in average U.S. home prices in 2018, compared with 6.3 percent growth this year.
Meanwhile, the National Association of Realtors (NAR) recently reported that pending home sales continue to decline, falling in August for the fifth time in six months.
The trend is expected to continue, as the lack of inventory and rising prices has kept many from finding the right home. In addition, Hurricanes Harvey and Irma led to a slowdown in activity in major real estate marketsin Texas and Florida.
“Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search,” said Lawrence Yun, NAR chief economist.
NAR is forecasting existing-home sales for 2017 to come in about 0.2 percent lower than last year. However, because many closings will shift into next year, sales will rise about 6.9 percent in 2018, according to NAR.
Sales for newly constructed homes increased 6.8 percent year-over-year in August, according to the Mortgage Bankers Association (MBA) Builder Application Survey (BAS).
The association attributes the trend to interest rates remaining lower than originally forecast, as well as the appreciation in prices of existing homes. The average loan size for new homes last month was $334,940.
”More than one-third of applications for new homes in our August survey came from Florida and Texas. It is unclear what impact hurricanes Harvey and Irma will have on housing starts in the region in coming months, but it is likely that recent new home sales will be delayed in breaking ground,” said Lynn Fisher, MBA's vice president of research and economics.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.