Fannie Mae Updates Refi Volume Forecast as Housing Demonstrates Resilience

In its latest forecast, Fannie Mae reported that housing continues to show remarkable strength and upwardly revised its home sales, home price growth and purchase mortgage origination forecasts. Residential fixed investment is now expected to grow significantly in the third quarter before pulling back in the latter part of 2020.

The continued decline in mortgage rates has resulted in Fannie Mae raising its refinance origination volume for 2020 by $100 billion.

Fannie now expects refinance volume to total $1.88 trillion in 2020 and account for 60 percent of all origination volume. At the beginning of the year, Fannie forecast only $690 billion in refinance originations, which would have comprised a third of all originations.

Overall, Fannie expects total originations for 2020 to come in around $3.13 trillion. This compares to $2.31 trillion in 2019.

Doug Duncan, Fannie Mae’s chief economist, estimated that at the current mortgage rate nearly 60 percent of all outstanding loan balances have at least a half-percentage point incentive to refinance.

“On the housing front, we marked up existing home sales by about 200,000 for all of 2020, which contributed to an upward revision of expected purchase mortgage origination volumes of around $40 billion this year. We think existing home sales' strength will largely be dictated by inventory constraints and will depend in large part on current owners re-gaining the confidence to list their homes.”

He added that a faster-than-expected pace of recovery in the second quarter contributed to an improvement in expectations for full-year 2020 economic growth.

"Our base scenario for the economy improved but did not shift dramatically from last month,” Duncan said. “We now expect full-year 2020 GDP to decline 4.2 percent before growing in 2021 by 4.0 percent. Incoming data have improved, but coronavirus infections have spiked as well. Restaurant reservations may have flattened due to virus transmission concerns, but gasoline purchases have risen as many Americans are opting to drive—rather than fly—to their summer vacation destinations, illustrating in part the recovery’s unevenness to date.”