Trends for 2018's Mortgage Market

Stay updated with the new trends.



It’s 2018, and we’re already looking ahead of us and into the future to keep growing and changing this new year. As we’ve explained before, the mortgage market in the U.S. is completely dynamic, and we need to stay updated on the last trends to understand how it works and where it’s headed. Before 2017 was over, Freddie Mac, one of the institutions in charge of buying and selling mortgage bonds, published its predictions for the next 12 months and we’ll be discussing them today.

The general forecast tells us that they expect this year to be favorable for both the housing and mortgage market, with low-interest rates, solid job gains, and moderate economic growth. For the most part, 2018 is predicted to be a year very similar to 2017. What we will see, however, it’s a raise on the number of people tapping their home equity, an increase in the purchase mortgage volume and cooling refinance activity. These will be the trends that’ll drive the mortgage market this new year.

Purchase mortgage volume increases

Year-to-date total home sales are the highest since 2007. This means that because house prices are growing and home sales are increasing, this year we can expect a higher purchase origination volume on mortgages. Longer term trends like the aging of the population and declining mobility across all age groups will keep a lid on existing home sales growth. On the other hand, they’ll be mostly represented by new homes sales, which should continue to grind higher with single-family construction.

Even though we’ve seen a steady home price growth over the past years, this 2018, said trend will be limited by a gradual increase in housing starts and moderate increases in mortgage rates. Freddie Mac forecasts average U.S. house price growth of 4.9 percent for the next 12 months.

Borrowers tap home equity

Rising home prices definitely represent good news for existing homeowners, since it means it’ll increase their home equity. That’s why many of them might choose to cash-out their home equity to pay for home improvement, consolidate other debts or pay off student debt. This will bring an increase of Home Equity Lines of Credits (HELOC) and refinance activity to shift into larger mortgages. If rates rise or remain flat, cash-out activity will become a significant share of total refinance practices.

According to Freddie Mac’s predictions, if cash-out equity extraction averages $20 billion a quarter, cash-out refinance activity would contribute about $300 billion worth of refinances each year. But even if the share of cash-out refinance activity increases dramatically ($300 billion would be about 75 percent of total refinance activity), the level of overall cash-out activity will likely remain well below the levels we saw last decade and mortgage debt growth will remain modest by historical standards.

So that’s part of what we’re expecting the mortgage market to look like for this 2018. Over the next months, we will see how it will evolve and how accurate these predictions will become. Follow Intercorp Mortgage Solutions for more information on market trends and housing finances!


Freddie Mac has published its predictions.

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