Lenders Optimistic as Spring Home Buying Season Approaches

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The fourth quarter of 2018 was dismal from a mortgage origination volume perspective, but in the first quarter of 2019 lenders have a slightly rosier outlook for mortgage origination volume – and profits – Fannie Mae’s Mortgage Lender Sentiment Survey shows.

With the spring home buying season fast approaching, lenders are hoping that home sales will bounce back from the lows of December and January. Considering that household incomes are rising and the job market is healthy, not to mention pent-up demand from the recent slowdown in sales, many lenders are anticipating a strong sales season. 

The survey shows that most mortgage lenders expect volume to increase in the months to come and, as a result, more reported that they expect profit margins to improve. As a result, net profit margin outlook improved compared with the previous quarter and the fourth quarter of 2017.

However, net profit margin outlook was still negative, overall. For the ninth consecutive quarter, “competition from other lenders” continued to be cited as the top reason for lenders’ decreased profit margin outlook.

“Consumer demand” also continued to be the second most important reason.

“Lenders appear less pessimistic regarding mortgage demand expectations; thus their profit margin outlook over the next three months is also slightly improved,” says Doug Duncan, senior vice president and chief economist at Fannie Mae, in a statement. “While the results seem to portray the gloomiest picture of purchase mortgage demand during the prior three months in the survey’s five-year history, the net share of lenders expecting rising demand over the next three months exceeded the level recorded in the same quarter last year.”

Stabilizing mortgage rates have resulted in lenders having a slightly rosier view of the refinance market.

“While more lenders anticipate declining rather than rising profit margins, continuing the trend that started in the fourth quarter of 2016, the net share expecting falling profit margins decreased from a survey high in the prior quarter to the lowest share in nearly two years,” Duncan says. “Lenders’ improved demand outlook going into the spring selling season bodes well for our forecast of relatively flat mortgage volume this year following the double-digit drop in 2018.”

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