Written By: Joel Palmer, Op-Ed Writer
Enjoy it while it lasts.
It’s been a better-than-expected year for mortgage processors and underwriters. While there isn’t concern about a repeat of 2007-2008, the mortgage and housing industries are preparing for an eventual slowdown in activity.
“It's unlikely the economic environment will be as favorable for housing and mortgage markets than it currently is.” That was a summary from Freddie Mac’s November Outlook. The same report touted 2017 as “The Best Year in a Decade.”
If one looks at overall mortgage originations, 2016 was a much better year than the current year. According to Freddie Mac, refinance activity fell 35 percent year-over-year through the first three quarters of 2017.
But on the positive side, mortgage rates have held below 4 percent for much of the year. This has helped refinance volume exceed previous expectations. Furthermore, new purchase volume is forecasted to exceed last year’s pace.
The overall market has also benefitted from a favorable economic environment, according to Freddie Mac.
“Despite a slowdown in home construction and home sales at the end of the year, both total home sales and housing starts still are on track for their best year in a decade,” according to the November Outlook.
Though a lack of housing inventory was a problem for the busy summer season, things picked up in the fall. The National Association of Realtors said existing home sales increased in October for the second consecutive month.
It will be awhile before mortgage underwriters and processors experience the volume they did in 2016, when there were $2.1 trillion in single-family mortgage originations.
Freddie Mac is forecasting $1.8 trillion in originations this year, then a slight drop-off to $1.7 trillion in 2018, followed by a slight rebound to $1.8 trillion in 2019.
Purchase loans are expected to increase each of the next two years, while refinance activity will continue to decline.
“After dropping from 2017 to 2018, the mortgage market will return to positive growth in 2019 as refinances stabilize at a low level and home purchase activity drives an expansion in overall activity.”
Freddie forecasts that, while mortgage rates will remain low by historical standards, they will edge higher over the next two years. The average rate on a 30-year fixed is forecasted to be 4.4 percent in 2018 and 4.7 percent in 2019.
One x-factor to these forecasts is what if any changes will be made to the mortgage interest tax deduction. Congress is currently debating tax reform measures and there is concern that legislation could further cause a slowdown in home buying.
"Making changes to the mortgage interest deduction, eliminating or capping the deduction for state and local taxes and modifying the rules on capital gains exemptions poses serious harm to millions of homeowners and future buyers," said NAR President Elizabeth Mendenhall. "With first-time buyers struggling to reach the market, Congress should not be creating disincentives to buy and sell a home.”
About the Author
As an NAMP® 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.