The mortgage business likely has hit bottom with nowhere to go, but up, Mortgage Bankers Association economists indicated this weekend at the group’s annual convention in Philadelphia.
But up will be a slow, drawn-out slog, with originations not hitting their stride again until 2025, MBA’s Chief Economist Mike Fratantoni said.
The association is looking for mortgage rates to drop from 7.5% this year – the highest average in more than two decades – to the “the sixes” next year and into the fives in 2025, Deputy Chief Economist Joel Kan told the opening day crowd.
At those rates, Kan said volumes in 2024 should reach $1.95 trillion, a jump of 19% from $1.69 trillion this year, and move still higher in 2025 to $2.25 trillion.
If the MBA is 100 basis points too low in its mortgage rate forecast, though, originations will rise to only $1.64 trillion next year and just $1.89 trillion in the year after that. If the economists miss their mark and rates should drop by 100 basis points more than predicted, volumes should jump to $2.3 trillion in 2024 and $2.68 in 2025.
Another way to look at the MBA’s forecast is the actual number of loans that will be produced. From this year’s 4.36 million mortgages, Kan said the number will increase 19% to 5.17 million in 2024 and 15% to 5.93 million in 2025.
Most of the next two year’s production will be in purchase money mortgages, Kan told the audience. Eventually, rates will fall low enough for homeowners who took out 6% and 7% loans this year to refinance. But for the foreseeable future, “purchase is where most of the growth is going to come from,” he said.
At the same time, most of the business will come from new home buyers as home builders ratchet up their production to somewhere near 1.2 million units, Kan said. And more and more borrowers will opt for today’s lower-risk adjustable rate loans which don’t reach their first adjustment for five, seven or even 10 years.
In his presentation, Fratantoni said it is “very difficult” to predict what trajectory interest rates will take. “Even the Fed is unable to do that,” he said.
But the economist is “confident” that the Fed, in its quest to bring inflation down to 2%, will forego any more increases in the Federal Funds rate this year and will make three cuts next year.
“They’re already at a place where if they do nothing, they are going to slow the rate of growth,” he said. “Inflation will come down; that’s what they want.” He predicted that inflation will “keep coming down” and “get to the 2.0 rate the Fed wants.”
For now, though, lenders are facing “a pretty tough environment,” Kan told the group. And Marina Walsh, vice preident of industry analysis, seconded that thought in her time on stage. Noting that lenders for the most part have lost money on every loan for five consecutive quarters, she said “these are really tough times.”
Of the 350 independent companies the MBA surveys, only 25% “are managing to eke out a profit,” Walsh reported.
