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The first quarter of 2019 is now complete. It’s a time we normally take to tweak our mortgage volume forecast to account for changes in economic conditions or assumptions that have occurred since our last forecast update in November.
However, after a review of our estimates and assumptions, we’re not changing a thing about our forecast. We’re standing pat.
As we were finalizing our numbers in November, long-term rates had begun what would become a 60-basis point (0.6 percentage point) decline. We chose to moderate the reduction in our refinance segment, by forecasting only a 5-9% decline in refi volume while forecasters like Fannie, Freddie and MBA were estimating more substantial 19-29% declines.
Most of our reasoning for such a modest decline was that we think refi levels are approaching a floor buoyed by cash-out refi demand (see the discussion on page 42 of our 2019 Forecast Notes presentation). But another part of our thinking was that long-term rates would not continue to rise as many were thinking in Q4. Of course, few if any forecasters predicted interest rates would fall as they have.
As mortgage rates have fallen over the last four months, refi application levels have picked up, though they are still below their levels from this time last year, as the chart above shows. We think mortgage rates would have to fall below the 3.75% threshold – near the 2017 low – before we’d expect to see a mini refi boom such as what we had in 2016.
Meanwhile, many forecasters are starting to gravitate to the refi levels we were envisioning four months ago. Fannie and MBA now think the refi decline will be in the -9% range. Freddie now thinks refis will actually rise 3%. We’ll soon see.
On the purchase side, mortgage originations will be far less susceptible to changes in prevailing interest rates. We’re more bullish about 2019 than others, expecting a purchase market growth of 7.3% in an environment of excellent labor market conditions and moderating home price increases. The other forecasters are a bit more pessimistic at this point, with purchase growth estimates rising between 1% and 5%.
Once again, we’ll soon see.
Expect to see our next forecast update following the expected May release of the 2018 HMDA data.