In his economic outlook for July, Fannie Mae lowered his interest rate forecast and is now forecasting slightly more purchases and refinancing this year than expected in June.
The improved outlook does not take into account the Federal Housing Finance Agency's removal of the 50 basis point adverse market fee on state-sponsored companies on most refinances announced last Friday. When the FHFA announced the fee last August, the industry was concerned that the increased costs could reduce refinancing activity, but the volume figures through the first half of this year suggest a limited impact.
Fannie Mae now expects production to be over $ 4.2 trillion this year, up from his June forecast of $ 4.1 trillion. His outlook is more optimistic than that of Freddie Mac, whose forecast for the third quarter is $ 3.9 trillion. The Freddie Mac forecast was released on July 15, two days before the FHFA canceled the adverse market fee.
The Mortgage Bankers Association has not yet released its July forecast, but it was consistently lower than the GSEs – in June it forecast a volume of $ 3.4 trillion in 2021.
The lowering of the fee may have an impact on the volume of refinancing, said Mike Fratantoni, chief economist at the MBA, pointing out that the 50 basis points means a 10 to 12 basis points higher interest rate. At the end of the day, the fee was "just a bit of sand in the corridors, which certainly wasn't helpful".
However, there are several other factors that need to be considered in the impact of this recent change.
"It will be difficult to analyze exactly what impact this change is having on current market activity. 12 basis points due to the fee will certainly help, but I think they will be tied into this market move and can benefit refi volume in general", said Fratantoni.
In recent weeks, the organization's data reported a decrease in both purchase and refinancing requests. The completion of the fee is intended to help prop up refi volume for the remainder of the year.
If the loan has not been completed by the fee suspension date, August 1st, it suggests that some lenders will extend this interest rate reduction to their borrowers, he noted.
Fannie Mae estimated that origination hit an all-time high of $ 4.5 trillion in 2020. Freddie Mac put the grand total at $ 4.1 trillion and the MBA at $ 3.8 trillion.
“We anticipate the spike in housing demand that we saw last year will fade as the impact of unique new factors wear off, including adjustments to pandemic remote working regulations, economic stimulus controls to boost household savings, and record-low mortgage rates. "Said Mark Palim, Fannie Mae's deputy chief economist, in a press release.
“However, demographic trends will remain favorable for a strong housing market over the next few years, and when combined with the chronic undersupply of housing built in the last decade, upward pressure is likely to persist over the forecast horizon – just not to the same extent seen this spring, "he added.
The interest rate forecast has been revised in recent weeks due to the downward trend in benchmark yields on 10-year government bonds. After starting at 1.62% in June, it ended the month 17 basis points lower. The 10-year yield closed at 1.30% on July 16. At 12:30 p.m. Eastern Time on July 19, it fell another 11 basis points to 1.19%.
Fannie Mae now expects the 30-year fixed rate mortgage to stay at 3% in the third quarter (unchanged from the second quarter) before rising to 3.1% in late 2021 and 3.3% in the following year. In the June forecast, the 30-year-old FRM was 3.2% in December and 3.4% a year later.
By comparison, Freddie Mac's latest forecast is that the 30-year-old FRM will hit 3.4% in the fourth quarter and 3.8% in 2022.
The rise in home prices will slow down in the future as supply-side problems resolve and builders bring more products to market while supply chain and labor problems resolve on their own. "Even so, we expect home price growth to become one of the more persistent drivers of inflation in the future as other, more temporary factors decrease," said Palim.
Fannie Mae also raised its outlook for 2022 to $ 3.23 trillion from $ 3.05 trillion in June.