Freddie Mac: Loan volume will top $2 trillion

Aug 15, 2016  14:45 ET Scotsman Guide

Mortgage originations will top $2 trillion in 2016 for the first time in four years, and key mortgage rates will stay below 4 percent for another year, Freddie Mac said Monday.

Based on ultra-low mortgage rates and the flurry of recent refinancing, Freddie upgraded its forecast for single-family originations by $175 billion above the July projection.

"At the current pace, we're likely to see the mortgage market top $2 trillion in originations for the first time since 2012,” Freddie’s Chief Economist Sean Becketti said.

Freddie analysts also believe that mortgage rates will stay below 4 percent through 2017, and average 3.7 percent for 30-year fixed mortgages, a factor that could keep refinancing in play for longer. 

Other outlooks for the market have been less optimistic. 

Freddie's cousin, Fannie Mae, forecast in July that overall loan volume will end 2016 at $1.75 trillion, 2 percent higher than in 2015. As of June, the Mortgage Bankers Association was predicting $1.66 trillion in overall single-family originations.

Mortgage rates have hovered near historic lows through most of this year. Last week, the 30-year fixed rate averaged 3.43 percent, down 51 basis points from a year ago, according to Freddie's weekly survey.

Most economists predicted that rates would rise above 4 percent by this point, and overall originations would fall with lessening refinancing activity. However, global volatility and mixed economic signals have kept Treasury yields down, pulling down longer-term rates. Most recently, Treasury yields declined with Britain’s Brexit decision in June to leave the European Union, prompting a burst of refinances here in the U.S. in early July. Freddie isn't expecting the rates to fall any further, but to stabilize below the 4 percent level. 

Freddie also has upgraded its projection for home sales, saying sales will reach 6.04 million in 2016, the most in a decade and ahead of the 5.96 million annual pace forecast in July. Rising home prices are also boosting the overall outlook for loan volumes this year by increasing home-loan purchase volumes. 

“Unlike in 2012, when the market was driven largely by refinances, today's market is more balanced between home refinances and purchases; nearly 50-50,” Becketti said. “This is good news for home sales as we're likely to see the best year in home sales in a decade.”

Not all news is good, however. Freddie is downgrading its projection for housing starts by 200,000 units to 1.2 million after a disappointing report for June from the U.S. Census Bureau. 

“Low levels of inventory across many markets will continue to put upward pressure on house prices for the foreseeable future," Becketti said.