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A Terrible, Horrible, No Good, Very Bad Forecast For The Mortgage Industry

Lew Sichelman
Oct 24, 2022
MBA Conference

MBA economist says origination for 2022 is slipping even further than predicted.

By Lew Sichelman
Columnist, National Mortgage Professional

NASHVILLE, Tenn. — When Michael Fratanoni took the stage Sunday at the Mortgage Bankers Association’s annual conference, the standing-room only crowd wasn’t expecting anything encouraging. They weren’t disappointed.

“I don’t have anything good,” said a somber Fratantoni, the MBA’s chief economist. “We’re forecasting a recession.”

“Unbelievable volatility” has driven mortgage rates to their highest point at any time since the pandemic and almost double what they were just a year ago, the economist noted, as if everybody in the audience didn’t already know that.

What they didn’t know is how bad their businesses would tumble, or for how long. And on that score, there wasn’t any good news, either. The MBA expects total origination volume to slip from $2.26 trillion this year to $2.05 trillion in 2023. That’s less than half the $4.4 trillion in loans that were written in 2021.

The bulk of that decline will be in refinancing, which will fall off by a staggering 24%. But purchase money lending will slip as well, by 3% to $1.53 trillion.

The outlook for housing is “pretty bleak” too, Joel Kan, the group’s deputy chief economist, told the opening general session. He expects starts to decline by 2%, from 1.56 million this year to 1.49 million next year. On the other hand, he said new home sales will rise by 2%, but only because of what’s already in the pipeline.

Existing sales, meanwhile, are expected to plunge by 8%, from 5.2 million in ‘22 to 4.8 million in ‘23, and then head back up in ‘24. 

Beyond the terrible, though, there is some light, according to Fratantoni, who said the expected recession will eventually serve to bring loan rates down to a more reasonable level.

Even though inflation is now pushing 8% — “More than four times the rate the Fed wants it to be,” the economist said — the MBA says the average mortgage rate for this year will be about 6.7%. But in 2023, he predicted, rates will end the year at 5.7%. And by 2024 and into 2025, rates should fall back to 4.5%.

In his talk, Fratantoni said the Fed’s tightening eventually has to stop. “Something’s got to give,” he said, noting that some – but not all – members of the central bank are starting to voice their concern that they may have gone too far. And when they speak, the world listens, he added, noting that what they say is “more important” than what they do.

Kan, meanwhile, pointed out that 50 million people are in the 28- to 38-year age bracket — their prime home-buying years, according to the National Association of Realtors — and said that number is “very supportive” of demand for houses and mortgages “going out a number of years.”

For the immediate future, though, the economist said the slowdown will cause price growth to moderate, from an annual rate of 17.9% last year to zero and then “flatten out” in 2023-24 before rising again at much slower pace.

The pause should allow household incomes to catch up to elevated property values, he added. But “many markets will see price declines, even as the national average remains largely unchanged.”

On a more positive note, Kan also reported that lenders should be able to find plenty of room for activity in the home equity lending sector, where owners have yet to tap a major share of the $29 billion in equity they’ve built up in their houses.

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