Freddie Mac increases its 2018 mortgage origination forecast

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Freddie Mac's economists took a more bullish outlook than others on the 2018 mortgage market, raising its forecast by $30 billion citing higher-than-projected refinance activity.

In its May forecast, Freddie Mac projected $1.75 trillion of mortgage originations in 2018 versus $1.72 trillion in its April forecast. The upward revision for 2018 is because mortgage refinance lending was stronger than expected so far this year, a Freddie Mac spokesman said. Even with the increased expectations for 2018, volume this year should decline by 6% from 2017's $1.436 trillion.

For 2019, it now foresees $1.744 trillion in originations, compared to its April forecast of $1.76 trillion, as higher interest rates will take a toll on the market.

Previously, Fannie Mae reduced its 2018 forecast by $23 billion to $1.667 trillion, while the Mortgage Bankers Association increased its outlook by a scant $2 billion to $1.613 trillion. Fannie Mae also reduced its 2019 forecast, but the MBA's was unchanged from April.

"While this spring's sudden rise in mortgage rates are taking up a good chunk of the conversation, it's the stubbornly low inventory levels in much of the country that are preventing sales from really taking off like they should be," said Freddie Mac Chief Economist Sam Khater.

"The underlying demand for buying a home is holding up, and will continue to do so, as long as the economy is generating solid job and income growth. Most markets simply need a lot more new and existing supply to cool price growth and give buyers enough choices."

Total home sales are forecast to increase 3.3% year-over-year to 6.32 million. Mortgage rates should hit 4.9% by the fourth quarter of this year and 5.4% by the end of 2019. However, because of the inventory shortage, home prices are expected to increase 7% this year.

For the first quarter of 2018, Freddie Mac increased its origination estimate to $388 billion from $373 billion and its second-quarter estimate to $482 billion from $441 billion. While in the third quarter, the forecast was increased by $2 billion to $480 billion, the fourth quarter outlook was cut to $400 billion from $428 billion in April.