A declining share of cash home sales will drive purchase home originations higher than previously expected through 2019, according to Fannie Mae.
The government-sponsored enterprise's June forecast for 2018 and 2019 raised total volume for each year to $1.71 trillion in its latest economic outlook. In May, Fannie Mae had projected volume of $1.67 trillion for each year.
The expected drop in cash sales is accompanied by a cut in its forecast for existing home sales this year. Fannie Mae now expects a 2% year-over-year increase in total home sales, compared with expectations of a 2.5% increase in May. It cut the forecast for existing home sales to a 0.8% year-over-year gain from May's 1.5% projection.
"As the Federal Reserve contemplates additional rate hikes this year and next, and the United States moves beyond the heated rhetoric of protectionism and toward the actual application of tariffs, the downside risks become more pronounced. Lean housing inventory, a strong labor market and positive demographics bode well for single-family homebuilding," said Fannie Mae Chief Economist Doug Duncan in a press release. "But builders continue to face headwinds from rising costs, which, along with rising interest rates, are also contributing to affordability concerns."
Fannie Mae also cut the projections for new home sales, to an 11.2% year-over-year gain in June from 11.9% the prior month.
While the Federal Reserve said it now expects to make four hikes of short-term interest rates in 2018, Duncan still only expects one more hike this year going forward, but there is an increased possibility that the second rate hike will occur.
Mortgage rates should remain flat through the end of 2019, at 4.6%; in May Fannie Mae expected rates to rise to 4.7% by the end of next year.
Fannie Mae increased its purchase volume expectations in June in all four quarters of 2018 and 2019. It now projects $1.23 trillion in purchase volume for 2018, compared with $1.19 trillion in the May forecast. There was $1.18 trillion of purchase volume in 2017.
Purchase volume in 2019 is expected to top $1.27 trillion in June's forecast versus a projection of $1.23 trillion in May.
The refinance origination projection for the next two years was unchanged, although Fannie Mae did reallocate volume for the first three quarters of 2018.