Fannie Lowers 2018 Mortgage Projections

Written By: Joel Palmer, Op-Ed Writer

The current state of the housing market caused Fannie Mae to revise downward its projections for mortgage originations this year. But there are a few positive signs in home construction and the multifamily markets.

In its latest economic forecast, Fannie Mae lowered its 2018 projections for both purchase and refinance originations. Citing a “general weakening of housing conditions in the second quarter,” Fannie economists now predict that overall originations will fall 9 percent this year compared with 2017. That includes a 28 percent drop in refinances with only a 2 percent increase in purchase mortgages. 

Fannie noted that first-half existing home sales fell 2.2 percent compared with 2017. Existing home sales also fell for the third straight month in June. Purchase mortgage applications fell in July for the second time in three months. 

Although inventories are starting to rebound — the for-sale existing home inventory reached its highest level in a year — they are still the primary cause of the decline in home sales.

Fannie is predicting existing home sales to fall nearly 1 percent for the year. That would be the first annual decline in four years.

One of the few bright spots is the sale of newly constructed homes. For the first half of 2018, new home sales jumped 7.4 percent year-over-year. Fannie expects total year new home sales to be up 6.5 percent over 2017. 

But new home sales account for a small fraction of the overall housing market. Plus, a greater share of newly constructed houses are being sold before they’re even started.

According to the report: “The share of new homes sold that are not yet started rose to 31 percent in June, the highest share since last November, underscoring the headwinds facing homebuilders from rapidly rising costs and shortages of skilled labor.”

Another growth area is the multifamily market. Recent analysis by Freddie Mac “finds that the strong performance experienced by the multifamily market in the first half of 2018 will continue throughout the end of the year and well into 2019.”

Freddie is forecasting multifamily origination value to growth 3.3 percent this year. Factors contributing to the strength of the multifamily market include lower than forecasted vacancy rates, an increase in rents, and capitalization rates that remain low. 

Multifamily supply has reached a 30-year high, but demand remains strong given the shortage of single-family stock. Demand will also stay high due to demographic and lifestyle preferences.

“While there is some moderation taking place in the multifamily market, we continue to see the same factors at play as we have for the past several years—short supply coupled with demographic and lifestyle preferences fueling strong demand,” said Steve Guggenmos,Freddie Mac multifamily research and modeling vice president. “This reality will continue to lead to low vacancy rates and healthy rent growth—while also supporting the elevated levels of new supply in the next few quarters without disruption.”

Another positive has been the relative stability in mortgage rates. After steadily increasing for the first five months of the year, rates have moved very little since May. But moderate rates are of little help to the housing market when there aren’t enough homes for sale.

“This stability in borrowing costs comes despite the highest core inflation rates since 2008 and turbulence in the currency markets,” said Sam Khater, Freddie Mac’s chief economist. “Unfortunately, this pause in rates is not leading to increasing home sales.”

“Purchase mortgage applications trailed year ago levels again last week, and it’s clear that in some markets the combination of ascending home prices, limited affordable inventory and this year’s higher rates are curtailing homebuyer demand.”


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.


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