MBA: Lending forecast to gradually recover after bottoming out this year

Originations projected at $1.64 trillion this year; expected to rebound above $2 trillion by 2025

U.S. mortgage origination volume is projected to regress to $1.64 trillion in 2023 before growing to $1.95 trillion next year, according to the newest forecast report from the Mortgage Bankers Association (MBA).

Presented at the MBA’s Annual Convention and Expo in Philadelphia, this year’s projection, if realized, would be down from roughly $2.31 trillion last year — a year-over-year backtrack of 29%. The predicted bounce back in 2024 would then represent a 19% increase from this year’s activity. According to Joel Kan, MBA’s deputy chief economist, this would be aided by a drop in mortgage rates, from about 7.5% currently to a range closer to 6% next year.

A more complete recovery is in the cards in 2025, according to the MBA forecast. Interest rates are expected to drop to about 5.5% by then, bringing total mortgage origination volume to about $2.25 trillion.

That’s the baseline forecast, at least. If mortgage rates are 1% higher than the baseline predicted by the MBA, the origination picture would shift downward dramatically, with the 2024 projection falling to $1.64 trillion before rising to $1.89 trillion in 2025. On the other hand, if rates end up 100 basis points lower than the MBA’s baseline prediction, the origination forecast would rise to $2.3 trillion by 2024.

Mike Fratantoni, MBA’s chief economist and senior vice president of research and industry technology, admitted difficulty in forecasting which path interest rates will take going forward. But he theorized that the Federal Reserve will elect not to raise its benchmark rate for the rest of 2023 and follow up with three rate decreases next year. Anyone expecting these cuts early, however, may be disappointed.

“The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected,” Fratantoni said.

Purchase mortgages are still expected to dominate origination activity over the next two years. Home prices, meanwhile, remain poised to climb for the next three years due to supply that remains historically weak. The inventory issues are especially acute considering that the MBA anticipates that first-time homebuyers will account for much of the demand in housing over the next few years as the next sizable cohort of young adults ages into the prime homebuying window. The MBA forecasts new home sales to remain stronger than existing home sales in the near term, in large part because of the paucity of resale supply.

“New home sales continue to be stronger than existing home sales, as buyers increasingly turn to newly constructed homes given the dearth of existing home listings and how competitive the bidding process still is,” Kan said. “Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months.”

In terms of expenses, the trade organization foresees the production losses that have dogged mortgage companies throughout this year persisting through next spring.

“Excess capacity continues to be a challenge for mortgage lenders, with low productivity levels and high expenses per loan,” said Marina Walsh, MBA’s vice president of industry analysis. “Lenders have reduced their head counts and gross expenses, but the record-low volume is a primary driver of these escalating per-loan costs.”

On the servicing side, healthy loan performance has raised net operating incomes, helping many lenders remain profitable, Walsh added. A bump in consumer costs, however, is expected to push up mortgage delinquency rates.

“In 2024, delinquency rates are likely to increase as unemployment increases, and borrowers are stressed by increasing property taxes and insurance and the resumption of student debt payments,” Walsh said.


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