Second quarter residential production came in lower than expected, but the recent weeks long dive in mortgage rates – and a subsequent increase in refinance applications – should boost third quarter originations significantly, according to a new forecast from Fannie Mae.
In the GSE's August Housing Forecast, Fannie chief economist Doug Duncan hiked his production estimate by 27% to $301 billion for 3Q. In July his forecast for the period was just $237 billion.
"Lower mortgage rates should help spur refinancing activity somewhat, as tight lending standards and the lack of equity remain hurdles for many borrowers who are in the money to refinance," Duncan says.
Although 3Q looks promising, Fannie is less sanguine about the fourth quarter. Its current estimate for the October to December period is a mere $195 billion, which would be one of the worst quarterly showings in the past 20 years.
For full year 2011, Fannie economists are projecting that mortgage bankers will fund $1.09 trillion in 1-4 family loans, down from $1.5 trillion in 2010.
The Mortgage Bankers Association late last week raised its 2011 production forecast to $1.1 trillion, but the weak economy and events surrounding the U.S. debt crisis also caused the trade group to reduce its 2012 estimate to just $931 billion, which would be the weakest year since 1997.
