Mortgage demand hits new low in Fannie Mae survey

The share of mortgage lenders reporting or expecting growth in mortgage demand hit new low points in the fourth quarter of 2018, according to the latest Mortgage Lender Sentiment survey from Fannie Mae. Lenders also had a negative outlook on profit margins for the ninth consecutive quarter.

A net share of 24 percent of lenders reported a decrease in GSE eligible purchase mortgage demand in the previous three months. This type of mortgage is backed by government-sponsored enterprises like Fannie Mae and Freddie Mac. A net share of 36 percent of lenders said they believe this type of demand will decrease in the next three months.

A net share of 10 percent of lenders said there had been an increase in non-GSE eligible purchase loan demand in the past three months, but a net share of 21 percent expected demand to drop in the near future. A net share of 17 percent said demand for government-backed purchase loans has dropped in the past three months, while a net share of 33 percent expected the decline in demand to continue into the first quarter of 2019.

Fannie Mae said the figures for recent purchase mortgage demand were at their lowest point for any fourth quarter since the survey began in 2014. Growth expectations for purchase sentiments in the next three months hit an all-time low for all loan types.

Higher rates have helped hinder refinance mortgage demand across all loan types since the first quarter of 2017. A net share of 75 percent of lenders said they have seen reduced demand for GSE eligible refinance loans in the past three months, while net shares of 67 percent and 72 percent reported less demand for non-GSE eligible and government loans, respectively. This was the second lowest point in survey history for GSE eligible loans and a new survey low for non-GSE eligible loans.

A net share of 63 percent expected less refinance loan demand in the next three months, while 64 percent believed demand would go down for non-GSE eligible loans and 60 percent thought there would be reduced demand for government loans. This marked a new survey low for GSE-eligible refinance mortgage expectations.

"Rising mortgage rates and lean inventory amid solid home price appreciation have discouraged both first-time and trade-up homebuyers," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "However, mortgage rates have shown signs of stabilization, and annual home price gains have slowed from the red-hot pace seen earlier this year. While 2018 is likely to end up a disappointing year for the housing and mortgage industries, continued strength in demographics and the labor market offers hope that conditions should stabilize and may even improve next year."

On net, 10 percent of lenders said they have eased credit standards for GSE eligible loans in the past three months while 16 percent had done so for non-GSE loans and 7 percent for government loans. A net share of 9 percent of lenders said they plan to ease credit standards for GSE eligible loans in the next three months, along with 11 percent for non-GSE eligible loans and 5 percent for government loans.

A net share of 34 percent of lenders said they believe their profit margins will decrease in the next three months, with 45 percent expecting lower profits and 11 percent expecting higher profits. Among those who said they believe their profits will decrease, 74 percent blamed competition from other lenders while 38 percent cited consumer demand and 19 named personnel costs. Those who said they expect higher profits at the start of 2019 were most likely to say they would be derived from operational efficiency such as technology improvements (65 percent), staffing reductions (32 percent), and consumer demand (21 percent).

A majority of lenders—80 percent—said they think the U.S. economy is on the right track, but this was down from 89 percent in the fourth quarter of 2017. The share of lenders saying the economy was on the wrong track rose from 5 percent last year to 14 percent in the most recent survey.

Just one-third of lenders said they expect home price growth to continue in the next 12 months, a year-over-year drop of 36 percentage points. One in four said they believe prices will drop, up from 6 percent at the end of 2017.

Fifty-two percent of lenders said they think it is easy for potential buyers to get a mortgage, up 6 percentage points from the previous year. The share of lenders saying it would be difficult to get a mortgage fell from 54 percent in the fourth quarter of 2017 to 47 percent.

Fannie Mae's Mortgage Lender Sentiment Survey has been issued quarterly since March 2014. The latest survey asked 239 senior executives at lending institutions a variety of questions to gauge their opinions on conditions in the mortgage industry.

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