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Freddie Mac increased its origination forecast for 2019 by nearly 4% from last month as lower interest rates will result in more borrowers refinancing than previously expected.
It now calls for $1.74 trillion in originations this year and $1.7 trillion in 2020, compared with its March forecast of $1.67 trillion for both years.
“While mortgage rates have risen in recent weeks, they remain lower than where they were a year ago and wage growth has accelerated and is finally growing at the same rate as home prices for the first time in seven years,” Freddie Mac Chief Economist Sam Khater said in a press release. “We expect to see the result of these low mortgage rates and stronger wage growth translate into better home sales in the coming months, along with better-than-expected refinance activity for the year.”
Earlier in April, Fannie Mae increased its origination forecast for 2019 to $1.62 trillion.
Interest rates for the 30-fixed mortgage are expected to average 4.2% in the second quarter and 4.3% for the rest of this year, before rising to 4.4% for the first two quarters of next year.
Previously, Khater expected rates to hit 4.6% by the end of 2019 and 4.7% in the first half of 2020.
Mortgages at coupons higher than 4.5% total $550 billion. They would have an incentive to refi if rates fell to 4%, according to a March report from Keefe, Bruyette & Woods.
The purchase outlook remained virtually unchanged for the rest of 2019. But refinance volume is now projected to be $571 billion compared with the March estimate of $505 billion. “Without a doubt, these low mortgage rates and higher incomes will help homebuyers on the affordability front this spring home buying season. Unfortunately, first-time homebuyers will likely not realize as much of the benefit with such high demand and price growth for lower-priced homes,” added Khater.
There were $1.65 trillion of mortgages originated last year, with purchases making up $1.16 trillion and refinancings at $490 billion.
Total home sales are now expected to increase over 2018, to 5.98 million units, from 5.97 million last year; the March forecast called for sales of 5.94 million units. Existing-home sales will increase compared with last year to 5.36 million units from 5.34 million while new-home sales will be flat at 630,000 units.