Fannie Mae expects lower rates to bolster originations and refinances

by Candyd Mendoza18 Jul 2019

A continuous drop in mortgage rates will boost origination and refinance activities in 2019 through 2020, according to the latest Fannie Mae Economic and Strategic Research Group forecast.

Fannie Mae predicted that the average interest rate for a 30-year fixed mortgage would go down from 3.9% in June to 3.7% in the second half of 2019. In turn, the GSE expects total mortgage origination volume to climb 7% this year.

Moreover, the GSE said to anticipate a surge in refinance activity and an increase in home prices. Refinances will climb to represent 32% of originations, while the average price of a US home will rise 5.4% in 2019, Fannie Mae predicted.

The new forecast also called for an upturn in both new and existing home sales as inventories and homebuyer sentiment improve. All of these would fuel the growth of the housing industry, said Fannie Mae Senior Vice President and Chief Economist Doug Duncan.

"Housing remains a net positive to the economy, as the industry anticipates growth fueled by strong household balance sheets, low mortgage rates, and a surge in refinance activity," Duncan said. "However, the housing industry still doesn't have an answer for the related problems of low supply and affordability. While home price appreciation has largely moderated particularly compared to the recent past – and demand for modestly-priced homes has proven strong and resilient, the lack of affordable inventory continues to cap sales and limit the potential pool of would-be homeowners."