Mortgage originations are forecast to reach about $1.63 trillion in 2017 – and although that is down from a forecast of $1.89 trillion for this year, purchases are anticipated to take up a much greater share of total originations, the Mortgage Bankers Association (MBA) announced during its Annual Conference and Expo held this week in Boston.
In fact, the MBA is forecasting that purchases will reach $1.1 trillion in 2017, which is an increase of 11% compared with a forecast of about $900 billion this year. Refinances, meanwhile, are anticipated to fall by about 40% in 2017.
“We are looking at the broader macro-economic economy continuing to grow at the pace that we’ve seen during the past couple of years – somewhere in the neighborhood of 2%,” Mike Fratantoni, chief economist, senior vice president, research and industry technology for the MBA told the crowd of mortgage bankers and vendors during a conference session on Tuesday. “That’s fast enough to keep the job market improving. We think we’re pretty much at full employment now; we’re at about a 5% unemployment rate. We think that will get down to about 4.6% and then level out.”
He added that, “Inflation is picking up at this point – fast enough where the Fed is likely to hike in December. It will likely hike a few times in 2017 and 2018, and slowly raise short-term interest rates until we get to about 3%, a few years from now.”
Fratantoni said mortgage bankers, however, should “not expect long term rates to rise nearly as quickly.”
“If you look at what’s happening in the rest of the world, it is just steadily putting downward pressure on the long end of the yield curve,” he said. “This has been an advantage for the housing and mortgage markets, which are more focused on the longer end… ”
In terms of volume, 2016 “has been a very good year,” he said.
“Obviously, the purchase market has evolved pretty much as we anticipated – about 10% growth from last year – and we think it will be well above $900 billion in terms of volume for the year,” he said. “We think in 2017 we’re going to see very similar growth – we’re going to see the highest number of purchase originations in over a decade – we think we’ll be at $1.1 trillion in just purchase volume alone.”
Fratantoni pointed out that mortgage rates dropped significantly in the first quarter because of concerns about the Chinese currency and dropped even lower in the second quarter due to the Brexit vote – each time resulting in several “refi boomlets” that helped boost total refinance volume significantly.
But the trend is not likely to last into 2017, he said.
“We do think that refi volume is going to melt away fairly quickly, Fratantoni said. “Just in the past couple of weeks, as rates have ticked up about a quarter of a point, we’ve seen 10% drops in refi apps just about every week… ”
Although the MBA is forecasting that purchases will drive a large share of the $1.6 trillion in volume for 2017, Fratantoni said it would not come easy – that it is “going to be a long uphill climb.”
To read the MBA’s updated economic forecast, click here.
To read its updated mortgage finance forecast, click here.