Fannie Mae raises origination estimates as economic outlook improves

With economic expansion expected to keep churning, Fannie Mae upwardly revised its single-family mortgage origination outlook for 2019 and 2020.

In November, the government-sponsored enterprise increased its mortgage production forecast by $21 billion for the rest of 2019 and $15 billion for 2020 from the month prior. Fannie anticipates this year to end with $2.06 trillion in total originations, 2020 to account for $1.87 trillion and 2021 to have $1.83 trillion.

"As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020," Doug Duncan, Fannie Mae's senior vice president and chief economist, said in a press release.

"Positive contributions from single-family housing construction, home improvements and brokers fees pushed residential fixed investment growth to a robust 5.1% annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace. With mortgage rates normalizing, we expect a decline in refinance activity in 2020, with the refinance share of originations dropping from a projected 37% in 2019 to 31%. Of course, the housing market as a whole remains constrained by the persistent supply and affordability issues, which is particularly unfortunate given the current strength of consumer demand for reasonably priced homes."

Overall origination numbers are expected to taper, with purchase figures continuing to rise in the next two years due in part to housing-start growth while refinances fall in line with a decelerating drop in rates.

Fannie expects housing starts to grow in the next three years as follows: 1.26 million in 2019, nearly 1.29 million in 2020 and about 1.3 million in 2021.

The GSE also expects the 30-year fixed mortgage rate to continue its descent, finishing 2019 at an average of 3.9%, then dropping to 3.6% in 2020 and 3.5% in 2021.

"Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth," said Duncan.

"A stronger-than-expected third quarter contributed to the downward revision to our fourth quarter forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter. Still, consumer spending is likely to continue driving the expansion forward, and with the passage of the budget act and a reprieve in trade tensions we've revised upward our forecast for full-year 2020 growth. We also continue to expect the Fed to cut interest rates only one more time in the foreseeable future, in early 2020, as a hedge against the sizeable downside risks and to counteract muted inflation."