Written By: Joel Palmer, Op-Ed Writer
With the new year a few weeks away, industry experts are forecasting increased volume and profitability for mortgage lenders in 2025.
Last month, Fitch Ratings published an outlook for non-bank mortgage companies. The ratings agency noted that consolidation in this market has strengthened the largest companies in this sector. This will enable them to take advantage of anticipated lower mortgage rates to increase origination volumes next year. That, in turn, will lead to improved profitability in the sector.
Earlier this month, Fitch upgraded its outlook for the U.S. banking sector, from deteriorating in 2024 to neutral in 2025. The summary didn’t mention mortgage lending specifically, but said its upgrade of the sector “reflects signs of stabilization in capital, funding and liquidity metrics and Fitch’s expectations for core asset quality and profitability ratios to follow in 2025.”
In a separate outlook, Fitch forecasted a boost for mortgage insurers due to the expected increase in originations.
“Despite challenges in home affordability, the credit quality of borrowers on new insurance written has remained strong,” said Fitch Senior Director Chris Grimes.
Real estate brokerage Redfin is hedging on its 2025 forecast for existing home sales. It forecasted a year-over-year increase of between 2 percent an 9 percent, noting that it’s using a wide range “because while high housing costs may price out some would-be buyers, there’s also a fair amount of pent-up demand in the market.”
Redfin said existing sales will be on the lower end of the scale, about 4.1 million, if mortgage rates are high and inventory stays low. Sales could reach as high as 4.4 million if mortgage rates decline and/or home buying demand grows.
The company added that it expects more sales on the lower end of the price scale. However, instead of new homeowners snapping up starter homes, they will be mostly bought by older buyers priced out of the higher end market. The Gen Z market, on the other hand, will continue renting or living at home in large numbers.
Fannie Mae’s home sales projections for next year are nearly identical to Redfin’s.
Fannie noted weak purchase activity in recent months, which along with its upwardly revised outlook on mortgage rates, led to a downward revision to its existing home sales outlook for the remainder of 2024 and into 2025.
Fannie expects existing home sales will be 4.01 million in 2024, which would represent a nearly 30-year low, and 4.18 million in 2025. Fannie is also forecasting new home sales to total 704,000 in 2024, before rising 7.2 percent in 2025 to 754,000.
With the downward revisions in its sales forecasts, Fannie also altered its predictions for mortgage originations.
Fannie is forecasting an 18 percent rise in mortgage originations between anticipated full-year dollar value in 2024 and 2025. Total single-family mortgage originations are expected to be $1.64 trillion in 2024, $1.94 trillion in 2025, and $2.40 trillion in 2026.
Of those figures, Fannie predicts refinance originations will climb from $351 billion this year, to $527 billion in 2025 and $705 billion in 2026. The share of overall single-family mortgage originations that will be refinances would be, respectively, 21 percent, 27 percent and 29 percent.
“Long-run interest rates have moved upward over the past couple months following a string of continued strong economic data and disappointing inflation readings,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist.
“To the extent that the recent run-up in rates has been driven by market expectations of stronger economic growth, we think this bodes well for the labor market outlook and home purchase demand. However, we expect inventories of homes added to the market, and therefore sales of existing homes, to remain subdued through next year, as the higher mortgage rate environment is likely to strengthen the ongoing lock-in effect. How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon.”
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
