Editor's Note: National Mortgage Professional contributing writer Lew Sichelman is onsite at this week's Mortgage Bankers Association annual conference in Denver. This is one of a series of reports from the event, exclusively for NMP.
With millions of people in the prime home-buying age group, the demographics are looking good for the mortgage business.
But the numbers aren’t necessarily lining up for buyers to jump headlong into the market, the chief economist of the Mortgage Bankers Association, Mike Frantantoni, said on the eve of the group’s annual convention here yesterday.
“Fifty million people in the 30 to 40-year-old age bracket are right on the cusp of home buying, so the demand is there,” Mike Frantantoni told the Sunday afternoon session. “But mortgage rates will remain in the neighborhood of 6%-plus for the foreseeable future. That’s certainly a whole lot better than the 7% we have been seeing, but we’re not going to see a whole lot more decline.”
While that doesn’t bode well for consumers, it doesn’t mean all is lost for lenders, for MBA’s economists are looking for a strong rebound in originations next year and beyond.
Frantantoni predicted that loan volumes will end 2024 at $1.8 trillion and then jump to $2.3 trillion in 2025 before leveling off in the $2.5 trillion range in 2026 and 2027. Deputy Chief Economist Joel Kan added that production will leap from 5.1 million loans this year to 6.5 million units next year and 8.7 million in 2026.
Frantantoni told the session he wasn’t certain the Federal Reserve Board will continue to trim the federal funds rate banks charge each other, saying the question now is how much more growth the economy can generate before serious inflation once again sets in.
“So far, the Fed has done a great job on inflation,” the economist said. “There’s still room to cut further, but it has to be cautious.”
He noted that “some households” have overextended themselves when it comes to spending, to the point of being stressed. And, he added, the unemployment rate is expected to rise. Both of these trends are expected to extend upward pressure on interest rates, he explained.
In his presentation, Kan pointed out the impact the lack of houses for sale has had on the market. During the first decade of the 21st century, some 3.1 million houses were listed for sale annually, he said. In the second decade, that number had declined to 2.4 million. But so far this decade, the number stands at just 1.6 million.
Inventories have grown a bit in the last few months, he admitted. But not enough to eliminate the “drastic drop” that has taken place.
The slowdown in new home construction also has weighed heavily on the market, Kan said. Calling the trend “under building.” he said builders have been putting up about 800,000 houses a year so far this decade vs. 2.1 million annually during the 2000-2009 period.
The MBA expects home price appreciation to slow appreciably, from 3.8% a year this year to 1.6% in 2025. That should help alleviate some of the pressure on prices, at least for a while before values grow again to the 2.28% range by 2028.
Despite all the negatives, independent mortgage bankers “are in a much better place now than when they were a year ago,” Vice President of Industry Analysis Marina Walsh said to end the session.
After eight consecutive quarters of losses, Walsh said, “the trajectory is up and heading in the right direction.”
Specifically, earnings rose from a loss of 250 basis points per loan in this year’s first quarter to a profit of 370 bps a loan in quarter two.
“And when all the numbers are counted, she said, “we expect the same in the third quarter.”
