Higher New Home Sales, Mortgage Lending

The Mortgage Corner

We wrote last week about unusually restrictive mortgage standards for conforming stalwarts Fannie Mae and Freddie Mac that are still wards of the US Treasury. Now we’ve learned that they are still doing almost record loan volumes. This is while new-home sales continue to soar in 2017, with continued prospects for growth if builders can find more construction workers—with as many as 50 percent undocumented that may be deported under President Trump’s new deportation orders.

And the National Association of Homebuilders reports they are lacking 200,000 construction workers, which building firms say would enable them to build more affordable housing. But despite the worker shortage, sales of newly built, single-family homes rose 3.7 percent in January to a seasonally adjusted annual rate of 555,000 units, per newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

“This increase in new home sales is in line with our forecast for a steady, gradual recovery of the housing market,” said Granger MacDonald, chairman of the National Association of Home Builders (NAHB). “However, the pace of growth may be hampered by supply-side headwinds, such as shortages of lots and labor.”

The combined volume of single-family loans purchased by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac totaled $909.2 billion, up nearly 24 percent from the 2015 mark of $733 billion, an analysis of GSE’s annual reports shows, per mortgage magazine Scotsman Guide.

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Graph: Scotsman Guide

The GSE combined loan counts for 2016 totaled 4.2 million, up more than 13 percent from the 3.7 million loans originated in 2015. Fannie and Freddie are the most important sources of liquidity in the single-family mortgage market. The GSEs purchase and securitize more than half of all residential loans in the U.S., making their activity an indicator of mortgage origination trends.

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In other words, Fannie and Freddie are the most important sources of liquidity in the single-family mortgage market. Fannie Mae saw the more significant gains over 2015. Fannie’s 2016 loan volume of $512.6 billion was 34 percent higher than in 2014, and its loan count rose by nearly 18 percent, to 2.5 million loans. Notably, Fannie experienced an 84 percent year-over-year surge in refinance activity in the fourth quarter, to 459,000 refis, up from 249,000 in 2015.

This is largely due to the historically low interest rates, even though entry-level homebuyers are still having a difficult time finding affordable homes. And “We can expect further growth in new home sales throughout the year, spurred on by employment gains and a rise in household formations,” said NAHB Chief Economist Robert Dietz. “As the supply of existing homes remains tight, more consumers will turn to new construction.”

The inventory of new home sales for sale was 265,000 in January, which is a 5.7-month supply at the current sales pace. The median sales price of new houses sold was $312,900.

Most analysts believe that refinance activity will drop off sharply in 2017 as interest rates rise, a factor that will lower the GSE counts as well as loan counts for other loan programs. The Mortgage Bankers Association predicted that overall single-family originations will fall to $1.56 trillion in 2017, down from $1.89 trillion in 2016. Aside from Fannie and Freddie loans, this forecast includes the government-loan programs, such as VA and FHA, reports Scotsman Guide.  

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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