Improved affordability should boost housing in 2019: Fannie Mae

Fannie Mae made a slight increase to its origination forecast, expecting housing affordability to improve in 2019 as mortgage rates remain flat and home price appreciation moderates.

The government-sponsored enterprise now expects $1.605 trillion in total volume next year, up from $1.603 trillion. However, it reduced its purchase forecast to $1.19 trillion from $1.2 trillion and raised its refinance projection to $413 billion from $401 billion.

"If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market," Fannie Mae Chief Economist Doug Duncan said in a press release. "We also expect residential fixed investment to resume a positive growth trajectory amid continued rising housing starts and stabilizing home sales. However, affordability is likely to remain an industry concern, particularly among first-time homebuyers."

Mortgage rates are expected to remain at 4.8% for the next two years, according to the December forecast. The November projection was for 4.9% at the start of 2019 and 5% through the end of 2020.

Fannie Mae is projecting $1.63 trillion in originations for this year, up from $1.62 trillion in its November forecast.

But the forecast cuts projected purchase mortgage volume to $1.166 trillion from the previous $1.7 trillion and raises the refinance estimate to $461 billion from $454 billion.

For 2018's fourth quarter, the projection was increased by $2 billion to $388 billion, with refis now coming in at $103 billion, compared with a previous forecast of $96 billion.

After hitting an 18-year low in November, refinance application volume has increased over the past three weeks, the Mortgage Bankers Association reported. The refi share was nearly 42% of all new mortgage applications for the week of Dec. 7.

But application activity to purchase a newly constructed home has been on the wane, down 14% in November from the previous month, and 11% from the previous year, the MBA said. Affordability was cited as the cause.

U.S. economic growth is expected to finish this year at 3.1%, before dropping to 2.3% next year and 1.6% for 2020.

"Fading fiscal policy, worsening net exports and moderating business investment all contribute to our projection that GDP growth will begin to slow in 2019," Duncan said.

"The labor market continues to be one of the economy's high points, and with inflation hovering around the Fed's 2% target, we maintain our call that the Fed will hike rates once more in December and two more times in 2019, despite rising market expectations of fewer hikes amid stock market volatility."

The Federal Open Market Committee is scheduled to meet on Dec. 18 and 19.