Mortgage lending this year likely will total $3.4 trillion, about $1 trillion higher than 2019, as low rates boost refinancings, Fannie Mae said in a forecast.
That would be the highest level of originations since 2003’s $3.8 trillion, according to data from the Mortgage Bankers Association. Fannie Mae’s forecast put refinancings at $2.1 trillion in 2020, compared with $1.1 trillion a year earlier, and lending for home purchases at $1.3 trillion, level with 2019.
“At the current mortgage rate, we estimate that 65% of all outstanding loan balances have at least a half-percentage point incentive to refinance,” Fannie Mae said in a statement posted on its website.
The average U.S. rate for a 30-year fixed mortgage probably will fall to 2.7% next year from 3.1% this year, the Fannie Mae forecast said. A month ago, Fannie Mae projected the rate would average 2.8% in 2021.
The new forecast is based on an expectation that so-called primary mortgage spread – meaning the difference between the 10-year Treasury yield and the 30-year fixed rate – will narrow, Fannie Mae said.
The spread, sometimes called the margin, is around 225 basis points, down from April’s peak of 272 basis points. Last year, the average spread was 180 basis points.
That margin “has remained elevated compared to historical norms, likely due to continued lender volume constraints, though these appear to be diminishing,” Fannie Mae said.
“We expect the compression of this spread to continue in the short run, bringing mortgage rates down closer to 2.7% by early 2021, providing support for home purchase and refinance activity,” the mortgage financier said.
Americans will purchase about 5.8 million new and existing homes in 2021, down 4.5% from 2019, the forecast said. That’s better than last month’s estimate, when Fannie Mae economists projected a 6.9% decline.
Home prices probably will gain 4.4% in 2020, based on the Federal Housing Finance Agency‘s purchase-only index, according to the forecast. That’s unchanged from month-ago forecast.