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MBA forecasts boom in purchase originations

In a forecast released Monday, the Mortgage Bankers Association predicted that purchase-loan originations will rise 11 percent, to reach $1.1 trillion in 2017, while refinance origination volume will fall 40 percent, to $529 billion. Lynn Fisher, MBA’s vice president of research and economics, spoke with Scotsman Guide News about the market trends and the mortgage outlook during MBA’s annual convention in Boston.

Why do you anticipate that the purchase market will dominate starting next year?

FisherWe do think that next year will be the crossover point. The job market is doing quite well now. We are at full employment. Median household incomes starting rising again last year. On the purchase side, we definitely think that is going to continue to grow. But as interest rates begin to inch up slowly — we’ll see some increase on the 30-year fixed rate — that is going to start bringing down the refi side of the market. So, one will be increasing as the other decreases over the coming year.

Was this the great surprise of 2016, that refinances remained strong?

We saw the year start off with the concerns about China and oil prices diving even further, so that was a surprise. That definitely created the opportunity for more refinancing; then again with the Brexit vote. Those are things that are hard to anticipate. So, it is very much global events that have driven that. The remaining questions for the year, what other global events impact the U.S. economy?

About the purchase market, are you concerned about affordability issues and inventory shortages?

That is probably the biggest headwind to the purchase side of the market in the coming year. We know that inventories are low. Markets are tight. We are going to continue to see house prices rise because we think there is demand. People have money to spend. They want to go out and start buying, but we are not building enough yet. We are just starting to see the single-family development sector start to build up, and they have lots of headwinds. There are labor shortages. It is costing them a lot for labor. Land values are high in many of the markets that have a lot of demand. So all those slow the pace at which we are building new houses.

Some markets are starting to be called bubbles. What do you say about that?

Again, given population growth, given that we have not built single-family housing in this country at very high rates at all over the last eight to 10 years, there is a real need for housing. Prices are being driven up largely by fundamentals. There are households with money in their pockets that want to buy houses, and we are not yet building enough to take care of that.

But that is not a bubble, right?

Right. A bubble occurs when house prices rise in the absence of the fundamental drivers. In this case, there is a lot of pent-up demand for housing, and that is what is driving the price growth. Hopefully, that price growth will get the developers off the sideline and back in business.

What is your assessment of the availability of credit right now, for first-time homebuyers particularly?

There are programs. We certainly have FHA programs. The government sponsored enterprises [Fannie Mae and Freddie Mac] also have low-downpayment programs available. As for the ability of lenders to lend in those spaces, we are still inside the credit box, as they say, because of concerns about the risk of lending. Mortgages have to be perfectly documented these days, and so that creates some challenges for getting people into their first home. We are still working on it. The industry is still extraordinarily interested in getting it right, but they have a lot of regulatory and compliance hurdles that they need to meet in order to do that. There are still a lot of frictions in being able to lend to those folks.

Are you generally optimistic about the housing market over the next couple of years?

I am cautiously optimistic. The U.S. domestic economy is fully employed, with wage growth. We have favorable demographics on our side. All of those things suggest there is a demand for affordable housing. We need to figure out how to develop new housing now and to supply the market with the type of housing that both young and older households would like to occupy. 


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