Mortgage originations on pace to have best year since 2003
Mortgage lenders are expected to have their best year for originations since 2003, as the economy will contract less than previously forecast, Fannie Mae said.
The GSE is now projecting $3.4 trillion in volume this year, with nearly $2.1 trillion in refinancings and $1.33 trillion in purchase volume. In July, Fannie Mae had projected $1.9 trillion in refis and $1.26 trillion in purchases. For 2003, there was $3.7 trillion of originations.
Fannie Mae updated its 2019 volume report to $2.46 trillion of total volume, with $1.33 trillion of purchase and $1.13 trillion of refinance; the change follows an analysis of recently released Home Mortgage Disclosure Act data.
"We believe housing will continue to be a sector with relative strength amid the larger downturn, as long-running supply constraints exacerbate demographic and interest rate demand-side factors that are supporting home price growth," Fannie Mae Chief Economist Doug Duncan said in a press release.
"The recently observed increase in purchase demand is largely due to pent-up demand as buyers are acting now after delaying purchases in the spring. We are, however, seeing some early signs of shifting buyer preference to locate to lower density areas, potentially driving some additional purchase activity," he added.
Single-family home starts are now projected to be almost flat compared with 2019, at an annualized pace of 882,000 for this year. That is a year-over-year decline of only 0.7% compared with 2019 versus Fannie Mae's prior forecast of a 6.1% decline, Duncan pointed out.
A report just released by BuildFax shows construction activity picking up, as single-family housing authorizations increased 6.83% compared with June but decreased 5.28% year over year.
It attributed the month-to-month change to builders reacting to a future rise in prospective homebuyers.
Maintenance construction activity for existing homes increased 5.6% over July 2019, BuildFax added.
"Housing activity has the potential to return to its early 2020 growth trajectory," Jonathan Kanarek, BuildFax managing director, said in the report. "We're still seeing some hesitance in the market, including the conflicting signals within new construction and decreases in construction spend. However, growth in new and existing housing activity signify consumers' underlying need for a larger and healthier housing stock."
Fannie Mae now expects new-home sales will increase to around 685,000 annualized units in the third quarter and to 689,000 for the year, up from June's predictions 660,000 and 667,000, respectively.
The overall U.S. economy is now expected to contract less than what Duncan previously forecasted, with gross domestic product shrinking by 3.1%, versus the previous forecast of 4.2%. The base scenario assumes the government will provide additional stimulus to consumers and businesses.
"The economy's climb back from the sudden and severe setback of the second quarter is fully underway, but we believe the future pace will be driven largely by the path of the novel coronavirus and how the public responds to coronavirus-related information," said Duncan.
While still a wild card, future localized or regional flare-ups of the coronavirus of a similar magnitude to what has happened so far, should not lead to a further contraction in economic output but rather a temporary pause in the rate of growth.