Fannie, Freddie, MBA economists predict interest rate hike in 2015

During a high-level discussion about the outlook of the housing economy at the Mortgage Bankers Association’s National Secondary Market Conference, economists from Fannie MaeFreddie Mac and the MBA all predicted that the Federal Reserve will begin raising the Federal Funds Rate at some point this year, most likely in September, which will drive an increase in interest rates.

Michael Fratantoni, the MBA’s chief economist and senior vice president of research and industry technology, and Leonard Kiefer, Freddie Mac’s deputy chief economist, joined Fannie Mae’s chief economist, Doug Duncan, on stage and each said that they are projecting interest rates to rise above 4% this year.

But all three economists agreed that despite the projected rise in interest rates, 2015 is still looking it’s going to be strong year for housing. And the economists all said that 2016 will be even better.

With the expected increase in interest rates, the share of refinance originations will likely fall, the economists said, but the strength of the refinance originations share in 2015’s first two quarters should help to carry this year.

Later, in a meeting with reporters, Fratantoni said that the MBA expects the Fed to raise rates in September, but predicts “heightened” interest rate volatility throughout the rest of this year.

Fratantoni said that he expects a similar reaction to the “taper tantrum” when the Fed announces its plan to raise rates. “As soon as the words escape their lips, you’re going to see rate volatility,” Fratantoni said.

Fratantoni provided reporters with a look at the MBA’s mortgage finance forecast for the rest of 2015. According to the MBA’s forecast, the interest rate for a 30-year fixed-rate mortgage will top 4% this quarter, ending at 4.1%.

In the third quarter, the MBA predicts interest rates will rise to 4.3%. And the MBA predicts that we will end 2015 with interest rates at 4.4%.

In 2016, the MBA projected interest rate climbs to 4.6% in the first quarter, 4.8% in the second quarter, 5.0% in the third quarter and 5.3% in the fourth quarter.

But despite those increases, the MBA predicts that housing starts, new home sales, and existing home sales will all rise from now through the end of 2016.

During his remarks, Duncan said that demand weakness trumps credit tightness when it comes to the reasons that many potential borrowers are not becoming actual borrowers.

Duncan said that he communicated his opinion on the level of demand weakness to FedChair Janet Yellen and reiterated his thoughts during the discussion on Monday.

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