Fannie Mae: Expect 2 more interest rate cuts this year

Mortgage servicing giant Fannie Mae says it expects the Federal Reserve to make two more quarter-point interest rate cuts before the end of the year, most likely in September and December.

If so, the cuts would likely result in lower mortgage rates for the remainder of this year, Fannie Mae officials said.

Fannie Mae’s Economic and Strategic Research Group noted in its latest Economic Housing Outlook that consumer demand for housing remains strong. It pointed to its latest Home Purchase Sentiment Index, which reached a record high in July as buyers showed more interest in real estate. Part of this is due to the low mortgage rates on offer now. However, Fannie Mae said that despite this interest, growth in the single-family housing market is being inhibited by a lack of inventory in many markets.

“Though the current expansion recently became the longest on record, reverberating trade tensions and general economic uncertainty continue to weigh on growth,” said Doug Duncan, Fannie Mae’s senior vice president and chief economist. “The persistent trade tensions between the U.S. and China threaten to further reduce business investment, disrupt equity markets, degrade household wealth, and diminish consumer spending, the country’s primary economic engine of late. To help shield financial markets, buoy consumers, and perhaps nudge inflation slightly higher, we now expect the Fed will cut interest rates by 25 basis points two more times in 2019, up from our previous prediction of one.”

Should the Fed cut its key interest rate, mortgage rates will likely follow in its wake. Mortgage rates are already near their lowest level in decades, with the 30-year fixed rate mortgage averaging 3.60% last week, according to Freddie Mac. The low rates are giving more homeowners a reason to refinance too, Duncan said.

“We estimate that 35 percent of outstanding mortgages are now ‘in the money,’ meaning borrowers may realize significant cost savings by refinancing; as such, we expect the share of refinance originations to grow through the remainder of the year,” he explained. “However, while existing homeowners may be able to enjoy the benefits of lower interest rates, many would-be homeowners, and the purchase mortgage market generally, remain unable to capitalize on the favorable rate environment due to the chronically limited supply of homes available for sale.”