Fannie Forecasts Declining Existing Sales, Increased Refinances for Remainder of 2019

Written By: Joel Palmer, Op-Ed Writer

Fannie Mae announced last week that it expects home sales to decline this year after previously forecasting a modest increase.

The continued dearth of housing inventory, especially in the affordable market, will limit home sales despite the combination of strong consumer demand and low mortgage rates, according to Fannie’s Economic and Strategic Research (ESR) Group.

According to Fannie’s August Housing Forecast, the inventory of existing homes in June was among the lowest for any June in nearly 20 years.

Existing home sales rose over the second quarter, though they were somewhat weaker in June than expected. Fannie is also forecasting existing home sales to improve in the third quarter. However, Fannie has modestly revised downward our forecast for existing home sales for the remainder of 2019.

“We now expect an annual decline of 0.1 percent in contrast to our previous forecast of a modest increase of 0.2 percent,” read the report.

Despite the drop in existing home sales, mortgage processors and underwriters will stay busy with refinances, according to Fannie.

Freddie Mac research shows that 30-year fixed mortgage rates are at three-year lows and down more than a full percentage point since November of last year year.

The recent slide in rates led Fannie to increase its forecast for single-family mortgage originations. The forecast now calls for a 12.3 percent year-over-year increase in originations to $1.84 trillion, driven largely by refinances that is expected to account for 35 percent of origination for the year.

Fannie explained that 35 percent of outstanding mortgages are “in the money,” meaning borrowers could save significantly by refinancing at a lower rate.

“Mortgage rates are approaching the lowest level in recent decades, and as they have moved lower more and more homeowners are finding incentive to refinance,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “However, while existing homeowners may be able to enjoy the benefits of lower interest rates, many would-be homeowners, and the purchase mortgage market generally, remain unable to capitalize on the favorable rate environment due to the chronically limited supply of homes available for sale.”

Housing activity fell 1.5 percent on an annualized basis in the second quarter. This, combined with homebuilders’ continued trend toward smaller homes, weighed on the total dollar value of single-family construction.

Fannie projects single-family construction spending to turn modestly positive during the latter half of this year. Multifamily construction was the bright spot of the second quarter and the sole driver of an overall increase in housing starts but was not enough to counter single-family weakness, as multifamily starts contribute less to residential investment per unit.

The ESR Group also updated its domestic monetary policy expectations and is calling for two more quarter-point interest rate cuts by the Federal Reserve in 2019, one in September and another in December.

“Though the current expansion recently became the longest on record, reverberating trade tensions and general economic uncertainty continue to weigh on growth,” said Duncan. “The persistent trade tensions between the U.S. and China threaten to further reduce business investment, disrupt equity markets, degrade household wealth, and diminish consumer spending, the country’s primary economic engine of late.”

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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