Fannie cuts origination forecast as housing resists broader growth

Fannie Mae decreased its 2018 origination forecast for the fourth time this year in anticipation of more upward pressure on rates, and housing weakness that persists despite increased overall economic strength.

Fannie revised its estimate for single-family mortgage production to $1.67 trillion, which represents a decline of $20 billion or a little over 1% from the previous month.

"Housing continues to drag on growth due to lackluster homebuilding activity, home sales and brokers' commissions; and its overall weakness likely reflects inventory shortages, rather than a decline in demand," Fannie Mae Chief Economist Doug Duncan said in a press release. "While meaningful wage growth remains elusive, the labor market is strong and inflation appears to be gaining additional steam, making a Fed rate hike in September highly likely."

Housing starts that could relieve the pressure on inventory are getting a little stronger, but the gains haven't been as strong as some forecasters had hoped, in line with persistent signs of weakness in housing that have been weighing on the economy.

"For the fourth time in five quarters, residential investment detracted from growth, as housing activity weakened across the board," Duncan said. "Tight supply continues to support home price appreciation while posing a challenge to affordability."

At $1.12 trillion, Fannie's estimate for home-purchase volume was lower by $9 billion or less than 1%.

Fannie is now expecting refinance originations, at $470 billion, to be more than 2% or $11 billion lower than it forecast in July.

The average 30-year mortgage rate is now expected to rise to 4.7% by the fourth quarter, rather than just 4.5% as forecast last month.