Mortgage prediction for 2020: a 30-year fixed at 2.875% without points

Eye-catching loan program of the week: A 30-year Veterans Administration loan can be had at 2.99% with 1.5 points. Lender pays for underwriting fee and escrow company fee on a purchase or refinance transaction.

What I think: Bet on real estate in 2020, says my crystal ball.

1) The Freddie Mac 30-year fixed rate will average 3.4%, about one-half point lower than 2019. Why? Equilibrium. Approximately 30% of global bonds are negative (bank pays you to borrow mortgage money and you pay the bank for the privilege of holding your hard-earned savings).

2) At some point in 2020, you’ll be able to capture a 30-year fixed at 2.875% without points.

3) Southern California’s median home price (for all types of homes) will rise 8%. Hey, we’ve already seen this market switch again to a sellers’ market: tight inventory and more affordable mortgages.

4) Southern California home sales volume will be down by 8%. Who wants to sell?

5) The Federal Reserve will not touch short-term rates. Fed chair Jerome Powell doesn’t have the stomach for anymore second-guessing from President Donald Trump.

6) Either an act of Congress or a Trump announcement will mandate a federal government guarantee on the debt of Fannie Mae and Freddie Mac before they are released from conservatorship. Federal Housing Finance Agency (F & F’s regulator and conservator) Director Mark Calabria’s plan currently excludes guarantees. Big-time mortgage investors like BlackRock and Fidelity Investments have already voiced their concerns, according to a recent piece in the Wall Street Journal. will make sure of this

7) California and the rest of the country will enjoy a repeal of the $10,000 so-called SALT cap (federal tax deductions for state and local taxes). Cap relief is in sight for those paying high property taxes without full deductibility. After all, a repeal just passed the House. I expect some horse-trading between the House and Senate to get this bill over the finish line.

8) Fog-the-mirror loans (qualify on just a credit score of 680 or better) will be reduced to as low as 20% down. Currently, the lowest available fogger is 25% down.

9) Retired Mortgage Bankers President and CEO Dave Stevens thinks the mortgage broker market share will top 20%, in part due to mortgage brokers access to the growing market share of non-traditional mortgages. I think one out of every four mortgages will be arranged by a mortgage broker. Recent CoreLogic data indicates the current market share is 16%. The low was 7% in 2011.

10) Refinance volume will be 50% more than 2019 numbers.

My 2019 prediction results

A year ago, I predicted these market swings for 2019. How did I do?

1) Freddie Mac rates averaged 3.93%. I predicted 3.75%. Close enough.

2) Refinance activity would more than double in 2019. Refinance activity was up 194% in the first three-quarters of 2019, according to Black Knight. Also, close enough.

3) The Federal Reserve would not raise short-term interest rates. Fed actually lowered rates to just about everyone’s surprise. Correct.

4) FHA delinquencies will increase by 10%. Barely a ripple of an increase. Incorrect.

5) FHA will reduce its maximum debt-to-income ratio qualifying from 56% to 48%. No change. Incorrect.

6) The U.S. will experience an inverted yield curve between the 2-year and the 10-year Treasury Constant Maturities (short-term rates are cheaper than long-term rates). It happened in August. Correct.

7) Gross Domestic Product will see an average growth rate of 1%. It was closer to 2.1%. Incorrect.

8) Southern California home sales volume will decrease by 8% compared with 2018. According to CoreLogic (12 months ended November 2019) sales volume was down by 4%. Incorrect.

9) Southern California’s median home price will decrease 3%. Prices were up actually 5.6%, according to CoreLogic. Way wrong!

10)  Fannie and Freddie will remain in conservatorship. Correct!