Highlights from this article:
- A mortgage industry forecast for 2020 predicts a slight drop in originations.
- But overall, 2020 is expected to be a good year for lenders in the U.S.
- Rates are expected to remain low over the coming months.
- Purchase loans will likely continue to dominate the market.
- Learn more about these and other predictions below.
The latest mortgage industry outlook from Freddie Mac suggests that 2020 could be another solid year for the lending industry. Low mortgage rates and generally favorable economic conditions are expected to increase home sales in 2020, compared to 2019.
In September 2019, Freddie Mac published its latest economic and housing market forecast with predictions extending through 2020. Among other things, they issued several positive predictions for the mortgage industry next year.
Here’s a recap of the key points from their outlook, along with some supporting data and commentary.
Positive Outlook for Mortgage Industry in 2020
As of late October 2019, mortgage rates were still down considerably from the same month a year earlier. That, along with other factors, could boost U.S. home sales and construction through the end of 2019 and into 2020.
A strong job market and consumer confidence are helping as well. Unemployment collection is currently near its lowest level since the 1970s, and jobless claims are also hovering at historical lows as of fall 2019.
All of these factors (including low mortgage rates and a strong job market) have contributed to Freddie Mac’s mostly positive prediction for the mortgage industry in 2020.
The group expects total origination volume to hit $2.1 trillion in 2019 (by the end of the year), followed by a slight decline to $1.8 trillion in 2020. The chart below shows purchase and refinance origination volume over the past few years, with a forecast for 2020.
Rates Expected to ‘Remain Low’ Into Next Year
Global bond markets have been given a shot of volatility in recent months, mostly due to ongoing trade disputes. And as usual, investors have turned to the relatively stability and safety of U.S. Treasuries. This trend has put downward pressure on interest rates, leading to the low-rate environment we are currently seeing in fall 2019.
But what about next year?
Freddie Mac’s 2020 mortgage industry outlook predicts that long-term rates will “remain flat on average” over the coming months. Despite the inevitable ups and downs, they do not anticipate a significant or lasting rise in rates anytime soon.
“We forecast the 10-year yield to average 1.8% in 2020, down from an annual average of 2.1% in 2019,” the report stated.
Low treasury yields tend to go hand-in-hand with low mortgage rates. And that’s another key industry prediction the group offered last month. They expect 30-year fixed mortgage rates to average 3.7% in the fourth quarter of 2019.
Here’s something that might come as a surprise. Industry forecasts for 2020 suggest that rates could actually be lower, on average, then they have been this year. To quote their September outlook report: “We project the annual average to be 4.0% in 2019 before declining to 3.8% in 2020.”
Home Sales Expected to Remain Strong Next Year
Given Freddie Mac’s favorable outlook for the mortgage industry and the broader economy in 2020, it’s no surprise to see them predicting “positive momentum” for home sales.
The group’s forecast for total home sales (which includes both new and existing units) suggests that we could see a slight uptick in sales next year. They predicted sales would end up totaling 5.98 million for this year, followed by 6.03 million in 2020.
But, as always, there is some regional variation to all of this. Some local housing markets are more sluggish than others, at present. And that will likely carry over into 2020 as well.
Home Prices Predicted to Rise Further in 2020
Home prices in most U.S. cities are expected to continue rising through 2019 and into 2020.
In fact, the team at Freddie Mac predicted that price growth could “continue to beat expectations in the coming months.” Their prediction is that home values will rise 3.4% in 2019, and then taper off to an annual gain of 2.6% in 2020.
That forecast closely resembles one issued by Zillow recently. In October, the economic research team at Zillow stated: “United States home values have gone up 4.8% over the past year and Zillow predicts they will rise 2.8% within the next year.”
Of course, prices aren’t rising everywhere. Some cities across the country are experiencing a downturn right now, in terms of home values. Seattle; San Jose; and Portland, Oregon all fall into that category, as do many other cities. But overall, prices are still climbing across the U.S.
So, as we can see, the housing market and mortgage industry outlook for 2020 is mostly positive. While home-price appreciation could decline a bit next year, mortgage lending activity is expected to remain strong due to low rates and a robust economy.
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