Freddie Mac raises its 2020 origination forecast by $700 billion

With mortgage rates expected to remain flat at 3% through the end of 2021, Freddie Mac has raised its mortgage origination forecast for this year to nearly $3.6 trillion.

"Even as the economy faces challenges from the coronavirus pandemic, the housing market has been showing strength," Freddie Mac Chief Economist Sam Khater said in a press release. "Refinance activity is solid and homebuyer demand continues, resulting in increased sales and an acceleration in house price growth."

Freddie Mac issues its forecasts on a quarterly basis. In its last set of projections made in June, the GSE predicted $2.9 trillion in volume for this year. Its rate forecast in the June release was higher, at 3.3% for the rest of this year and 3.2% for all of next.

Yet even with next year's rates projected to be 20 basis points lower than expected from the prior forecast, Freddie Mac's 2021 outlook was only increased marginally, to $2.7 trillion from June's $2.5 trillion.

Fannie Mae in its September forecast predicted $3.9 trillion in mortgage originations this year and $2.6 trillion in 2021. Meanwhile, the Mortgage Bankers Association in September predicted $3.1 trillion this year and $2.2 trillion next year. Unlike Fannie and Freddie, the MBA's Chief Economist Mike Fratanoni expected rates to rise from now through the fourth quarter of next year.

When it comes to purchase activity, Freddie Mac sees a slight increase in volume for 2021 compared with this year. For 2020, Freddie Mac expects $1.41 trillion in purchase originations, while it projects $1.44 trillion during 2021.

"While construction has rebounded, the slowdown in activity in the spring and early summer of 2020 will translate to fewer new homes available for sale next year," a blog accompanying Freddie Mac's forecast said. "Thus we forecast home sales to decline slightly to 6.1 million in 2021."

But even as rates remain flat, refinance volume is expected to drop by 43% next year, to $1.24 trillion from $2.17 trillion. However, Freddie Mac still expects refi originations to outpace purchases through the first quarter of next year.