Mortgage lenders are facing an even less profitable environment as demand for home loans for purchases as well as refinancings fell for the ninth straight quarter.

Fannie Mae's Q4 2018 Mortgage Lender Sentiment Survey®found that the outlook for profit among lenders in the fourth quarter reached an all-time survey low across all loan types – GSE-eligible, non-GSE-eligible, and government. "Competition from other lenders" was cited by survey participants as the top reason for their pessimism for the eighth consecutive quarter.

For purchase mortgage demand, across all loan types the net shares of lenders reporting growth for the prior quarter reached the lowest reading for any fourth quarter in the survey's history, while the prior quarter's demand growth for GSE-eligible refinance mortgages was the second lowest in the survey. Lenders also reported downbeat mortgage demand growth expectations.

"Stressful conditions continue to hang over the mortgage industry. Lenders are reporting the lowest purchase mortgage demand expectations across all loans types and the worst refinance demand expectations for GSE-eligible loans in the survey's five-year history," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "Rising mortgage rates and lean inventory amid solid home price appreciation have discouraged both first-time and trade-up home buyers. However, mortgage rates have shown signs of stabilization, and annual home price gains have slowed from the red-hot pace seen earlier this year. While 2018 is likely to end up a disappointing year for the housing and mortgage industries, continued strength in demographics and the labor market offers hope that conditions should stabilize and may even improve next year."

MORTGAGE LENDER SENTIMENT SURVEY HIGHLIGHTS:

  • For purchase mortgages, across all loan types (GSE-eligible, non-GSE-eligible, and government) the net share of lenders reporting demand growth over the prior three months reached the lowest reading for any fourth quarter since the survey's inception in 2014, and the net share reporting growth expectations for the next three months reached an all-time survey low across all loan types.
  • For refinance mortgages, the net share of lenders reporting demand growth over the prior three months declined to the second lowest level in the survey history for GSE-eligible and to the lowest level in the survey history for non-GSE-eligible loans. The net shares reporting growth expectations for the next three months continued its decline, with the net share for GSE-eligible loans reaching a new survey low.
  • Lenders on net continued easing lending standards at a modest pace since the start of the year. However, the pace was significantly lower than the pace seen a year ago (Q4 2017).
  • The net easing expectations over the next three months for all three loan types remained relatively stable from last quarter and last year.
  • Lenders' net profit margin outlook remained negative for the ninth consecutive quarter and reached a new survey low (since 2014).
  • "Competition from other lenders" was cited as the top reason for lenders' decreased profit margin outlook for the eighth consecutive quarter.
  • "Consumer demand" was cited as the second most important reason for the decreased profit margin outlook, reaching a survey high.