Fannie Mae’s Q1 2017 Mortgage Lender Sentiment Survey reveals that mortgage lenders are more confident in the economy than ever before since the survey’s launch in Q1 of 2014. At the same time, it indicates that a swing towards purchase mortgages creates challenges for their profit margins.
Senior executives from all sized lending institutions report being more optimistic about the direction of the economy, their current activities and market expectations. “This quarter, lenders’ optimism toward the overall economy and home price appreciation hit survey highs, [echoing] the consumer confidence seen in our February Home Price Sentiment Index,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
Contrastingly, mortgage lenders are not as optimistic about the growth of purchase mortgages. Their expectations were heavily impacted by the increase in mortgage rates. As a result, the number of lenders expecting an increase in purchase mortgage activity over the next three months dropped to the lowest level in the history of the survey.
While expectations for profit margins increased from the previous quarter’s three-year low, they are still significantly lower than the Q1 of the prior year. Lenders are naming market shifts from refinance to purchase along with lender competition as the top causes for their diminished profit-margin outlook. Duncan elaborated, “With mortgage rates expected to rise, we expect refinance activity will fall and purchase affordability will tighten, increasing competitive pressure in a shrinking mortgage market.”
Duncan predicts that lending institutions may indeed make adjustments in staff resources and production capabilities in response to the lowered expectation of activity and profits.
Noticeably, lenders aren’t the only ones showing extremely boosted confidence in the economy. The most recent survey of consumers conducted by the University of Michigan reveals that consumer confidence continues to escalate. Results showed a surge upwards to 125.6 in March from 116.1 in February, well above the MarketWatch-compiled consensus of 114.1.
A recent consumer-focused survey from Fannie Mae shows consumers’ faith in the housing market is stronger than it’s ever been historically. Likewise, following President Donald Trump’s actions on regulatory reform, builder confidence in the market for new single-family homes rose, hitting a 12-year high, according to the latest National Association of Home Builders and Wells Fargo Housing Market Index.