Fannie Mae Sees Best Year for Originations Since 2003
Low interest rate-driven refinancings, plus migration of workers to lower density area, means a banner year for mortgages—if certain assumptions about the government and COVID-19 are met.
Fannie Mae is looking on the bright side.
Thanks to a boom in refinancings—and confident that Washington will come together on further fiscal stimulus—the government-sponsored mortgage backer is expecting 2020 to be the best year for mortgage originations since 2003.
“We believe housing will continue to be a sector with relative strength amid the larger downturn, as long-running supply constraints exacerbate demographic and interest rate demand-side factors that are supporting home price growth,” Doug Duncan, Fannie Mae senior vice president and chief economist said in recent commentary.
Fannie’s Economic and Strategic Resource (ESR) Group revised up its expectations for home sales and mortgage originations in 2020 and 2021, with total origination volume targeted at $3.4 trillion in 2020.
Fueled by low interest rates, single-family home refinancings exploded from $502 billion (non-seasonally adjusted) in Q1 to $827 billion in Q2. While that figure is projected to drop back to $449 billion in Q3, an anticipated uptick in new home sale originations, from $317 billion in Q2 to $413 billion in Q3 is projected to pick up the slack. ESR is projecting overall single-family purchase volume of $1.332 trillion in 2020, slightly ahead of last year’s $1.326 trillion.
Home sales have been on the rise due to pent-up demand after purchases were delayed in the spring. Relocations may also be a factor. ESR sees “some early signs of shifting buyer preference to lower density areas, potentially driving some additional purchase activity.”
It all adds up to rosy outlook for the next 16 months, though it’s based on certain assumptions. One is that 30-year fixed rates will continue to drop from their already historic low of about 3 percent to 2.7 percent through the back end of 2021. ESR’s base scenario also assumes that Congress and the president will agree on additional fiscal stimulus, and that any further coronavirus flareups will lead to only a pause in economic growth, and not a contraction.
“The economy’s climb back from the sudden and severe setback of the second quarter is fully underway, but we believe the future pace will be driven largely by the path of the novel coronavirus and how the public responds to coronavirus-related information,” Duncan said.