Mortgage Activity Remains Strong

Written By: Joel Palmer, Op-Ed Writer

While a shortage of housing supply is limiting purchase mortgages, the decline in mortgage rates is helping keep underwriters and processors busy with refinances.

According to Fannie Mae’s Economic and Housing Outlook for September, existing home sales and construction spending rose in July by their highest rates since spring 2018. Fannie also noted that retail sales at home improvement stores improved during July.

“Together, these positive developments suggest a modest rebound in residential fixed investment in the third quarter, which would end six consecutive quarters of declines,” read the report.

But declines in home inventories the previous two months will likely temper home sales going forward, according to Fannie.

Fannie said inventories in July were the lowest July reading since records began. The report also noted that a decline in pending sales for July will erase the sales gains from June.

In addition, there was a decline in purchase mortgage applications in August, the largest since February. That means sales will likely be lower in September and October.

“The paucity of listings has prevented home sales from responding to lower interest rates as strongly as they have in the past,” read the report. “Given the weak response to lower rates to date, we revised slightly downward our existing sales forecast over the coming quarters, and we now we expect 2019 existing sales to fall a modest 0.3 percent from 2018 levels.

“Both our consumer and lender attitudinal surveys hit new highs this month due to near-historically low mortgage rates and generally favorable household balance sheets, but inventory constraints, particularly in the affordable space, continue to hold back housing market sales volume,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.

On a positive note, the Mortgage Bankers Association reported this week that its purchase mortgage index increased for the third straight week to its highest reading since July. Average loan amounts reached their highest level since June.

"This is a likely a sign that the underlying demand for buying a home remains strong, despite some of the recent volatility we have seen,” said Joel Kan, MBA's associate vice president of economic and industry forecasting.

Given the demand, Fannie expects modest increases in new single-family housing starts, even as builders face labor and land constraints. New sales will also trend upward, but at a slower pace than starts, as year-to-date sales have been bolstered by home builders drawing down excess inventory of previously started homes that had built up at the end of last year. In coming months homebuilders will have to rely more heavily on starts to fulfill sales demand, and sales will be increasingly limited by the pace of construction.

“Refreshingly, in the absence of existing stock, homebuilders appear to be increasingly focused on entry-level homes, as the median square footage of new single-family construction fell 4.3 percent in the second quarter,” said Duncan.

Refinancing activity should continue as mortgage rates remain nearly a full percentage point below last year’s rates.

Fannie estimates that approximately 40 percent of outstanding mortgages, or about $4.1 trillion of unpaid principal balance, would likely benefit from refinancing. Fannie expects the share of refinance originations to grow through the remainder of the 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.