Fannie Mae predicts highest refinancing volume in nearly a decade
Continued low interest rates due to the coronavirus-economic contraction likely means that 2020 will have the largest refinance volume in eight years, Fannie Mae's latest forecast said.
"We expect the contraction in the second quarter of 2020 to represent the floor of the sudden and historic drop in economic activity associated with the coronavirus," Fannie Mae Chief Economist Doug Duncan said in a press release.
"The timing and pace of recovery remains in many ways unknown, as it depends on the dissipation or treatment of the disease and the reaction of the public to its incidence, duration and severity,” he added.
Duncan downgraded his economic forecast to a gross domestic product contraction of 36.6% for the second quarter and 5.3% for the year; one month ago, he expected the economy to contract by 25.3% for the quarter and 3.1% for the year.
The forecast predicts a 30% decline in home sales for the second quarter and 15% for 2020, although the latest projection does reflect an uptick in the pace of sales.
While some consumers are reluctant to purchase homes in the current environment, the real driver for lower sales is less inventory, he said.
"Very low interest rates offer some support to the demand side of the housing market, while the supply side recedes via the unwillingness of homeowners to offer properties for sale under the current public health conditions. In the near term, this implies support for home prices," Duncan said. "Low interest rates also present a refinance opportunity for millions, and as a result we expect the highest level of annual refinance activity since 2012."
For the fourth week in a row, the Mortgage Bankers Association reported an increase in purchase application activity, although it is still 10% lower than it was a year ago.
Duncan is now forecasting $1.53 trillion in refinance originations for 2020, which is a $112 billion increase from April's projection of $1.41 trillion. There was approximately $1.5 trillion in refinance volume in 2012.
Purchase volume should come in at slightly under $1.1 trillion (down about $100 billion from April's forecast) for a total of $2.625 trillion for the year. Last month, Duncan had 2020 total volume at $2.52 trillion.
For 2021, Duncan is projecting $1.29 trillion in purchases (down from $1.31 trillion in April) and $1.15 trillion (unchanged) in refinancings.
He expects a shift back to a purchase market in the second quarter of 2021.