Freddie Mac is forecasting that the U.S. housing market will improve in 2015 – but that doesn't necessarily mean it will be a better year for mortgage lenders.
In its November U.S. Economic and Housing Market Outlook, the government-sponsored enterprise (GSE) says it expects total mortgage origination volume for single-family homes to reach $1.1 trillion in 2015, an increase of 8% compared to this year. However, this will be offset by a significant decrease in refinances, which are expected to make up only 23% of originations.
Driving the decrease in refinances, of course, is the forecast increase in mortgage rates. Freddie Mac predicts that fixed mortgage rates for 30-year loans will hit 5% before the end of 2015.
Meanwhile, the GSE is forecasting that multifamily mortgage originations will rise about 14% in 2015, as demand for rentals increases.
Originations for refinances have increased about 60% between 2011 and 2014, due primarily to historically low mortgage rates, Freddie Mac reports.
One thing that could hold back purchase volume is if home prices continue to rise. Freddie Mac forecasts that annual home price gains will slow from 9.3% in 2013 to 4.5% in 2014, to 3.0% in 2015.
However, another factor that could help hold down home prices and increase affordability is increased inventory. The GSE forecasts that total housing starts will increase by 20% in 2015, helping to drive an increase in inventory that should boost total home sales by about 5%.
‘The good news is that the U.S. economy appears well poised to sustain about a 3 percent growth rate in 2015 – only the second year in the past decade with growth at that pace or better,’ says Frank Nothaft, vice president and chief economist for Freddie Mac, in a statement. ‘There are several reasons for the better macroeconomic performance. Governmental fiscal drag has turned into fiscal stimulus, lower energy costs support consumer spending and business investment, further easing of credit conditions for business and real estate lending support commerce and development, and more upbeat consumer and business confidence, all of which portend faster economic growth in 2015. And with that, the economy will produce more and better-paying jobs, providing the financial wherewithal to support household formations and housing activity.’
In October, the Mortgage Bankers Association (MBA) forecast $1.19 trillion in mortgage originations during 2015 – a spike of 7% from 2014. While the MBA anticipates purchase originations will increase 15%, it expects refinance originations to decrease 3%.
Purchase originations will increase to $731 billion in 2015, up from $635 billion in 2014. In contrast, refinances are expected to drop to $457 billion from $471 billion.
For 2016, the MBA is forecasting purchase originations of $791 billion and refinance originations of $379 billion – for a total of $1.17 trillion.