Industry Expectations for 2019 Becoming more “Pessimistic”

Written By: Joel Palmer, Op-Ed Writer

Mortgage processors and underwriters may notice less overall activity in the next year.

Several industry organizations and agencies have revised projections for the remainder of 2018 and 2019, and those new projections tend to be lower than previously thought.

Fannie Mae, Freddie Mac and the Mortgage Bankers Association (MBA) are forecasting mortgage originations to end the year between $1.635 and $1.65 trillion.

Fannie Mae predicts total mortgage volume of $1.635 trillion in 2018, falling to $1.625 trillion in 2019. The GSE shows home purchase origination volume rising from $1.18 trillion this year to $1.22 in 2019. Refinance mortgages will drop from $454 billion in 2018 to $401 billion next year.

“Our expectations for housing have become more pessimistic: Rising interest rates and declining housing sentiment from both consumers and lenders led us to lower our home sales forecast over the duration of 2018 and through 2019,” said Fannie Mae Chief Economist Doug Duncan in the release for the agency’s October 2018 Economic and Housing Outlook. “Meanwhile, affordability, especially for first-time homebuyers, remains atop the list of challenges facing the housing market.”

Freddie Mac wrote in its September Forecast that total home sales would decline for the year from 6.12 million in 2017 to 6.07 million this year. The decrease in home sales plus a decline in refinancing activity would cause single-family first-lien mortgage organizations to fall 9 percent for the year.

“The spring and summer home buying and selling season ultimately ended up being a letdown, despite a faster growing economy and healthy demand for buying a home,” said Freddie Mac Chief Economist Sam Khater. “Unfortunately, too many would-be buyers continue to be tripped up by not enough affordable supply and the one-two punch of much higher home prices and mortgage rates.”  

Freddie noted that the share of cash-out refinances last quarter, which was 78 percent, was the highest since the third quarter of 2008. However, the total dollar volume of cash-out refinance activity remains much lower than the peak seen more than a decade ago.

The MBA is forecasting a decrease of total originations from $1.64 trillion this year to $1.63 trillion in 2019.

The association forecast includes a 4.2 percent increase in new purchase mortgages, to $1.24 trillion. MBA anticipates refinance originations will continue to trend lower next year, decreasing by 12.4 percent to $395 billion.

In 2020, MBA is forecasting purchase originations of $1.27 trillion, and refinance originations of $410 billion, for a total of $1.68 trillion.  

"While the macroeconomic and housing market backdrops are, and should remain quite favorable, the mortgage industry continues to be challenged by the drop in origination volume, coupled with significant margin compression," said Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology. "Lenders of all types and sizes are seeing elevated costs, coupled with intensely competitive pricing, to capture more volume. This in turn is depressing revenues.”

Another issue continuing to face housing is the lack of new inventory. According to the Commerce Department, housing starts in September dropped 5.3 percent to a seasonally adjusted annual rate of 1.2 million.

The building industry has pointed out that construction is construction is up for the year, but economists say that the signs point to a plateauing of new home building due to higher mortgage rates and increasing building costs.

Fannie Mae is forecasting averaging 30-year fixed mortgage rates to be 4.8 percent in 2019. MBA and Freddie Mac predict the rate will hit 5.1 percent in the next year.

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.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.