MBA Raises Mortgage Forecast, For Now

The Mortgage Bankers Association raised its forecast for mortgage originations this year, while cutting its forecast for economic growth, citing the economic turmoil around the coronavirus.

MBA Economist and Forecaster Joel Kan said Wednesday, the thin economic growth expectations could disappear quickly if conditions worsen, and the U.S. could fall into recession.

“We did come pretty close,” Kan said. Previously MBA predicted 1.3% growth this year. Now, he said, “We have zeros in front of everything.”

“We’ve raised our recession probability. It won’t take a lot to push us into negative territory,” Kan said.

CU Times interviewed Kan just hours before the World Health Organization on Wednesday declared the coronavirus a pandemic.

MBA’s new forecast for 2020’s inflation-adjusted growth in Gross Domestic Product is 0.6%, down from 1.3% in its Feb. 20 forecast.

Meanwhile, the Washington, D.C., trade group reversed course on the mortgage forecast. In Dec. 13, 2019, MBA predicted first-mortgage originations for 2020 would be $1.91 trillion, down 7.4% from 2019 as interest rates rose. Instead, interest rates have fallen even further, contributing to its new forecast that originations will rise 20.1% this year.

“The silver lining is with the big drop in rates,” Kan said.

In December rates on 30-year mortgages were 3.7%, and MBA expected them to remain there through mid-2021 before rising. MBA now expects they will drop to 3.3% in the second and third quarters before starting to rise.

MBA now forecasts mortgages originated for home buyers will rise 8.3% this year to $1.38 trillion, while refinances will rise 36.7% to $1.23 trillion. It expects refinance originations will account for 30% of origination value, up from 25% in its Dec. 13 forecast.

The U.S. economy grew 2.9% in 2018 and 2.3% in 2019.

On Feb. 25, NAFCU Chief Economist Curt Long lowered his estimate for U.S. GDP growth to 1.7%, down from his previous 2% forecast in response to virus risks.

On Feb. 28, CUNA Mutual Group Chief Economist Steven Rick said if the current spread of the virus develops into a pandemic, it could lower U.S. GDP growth this year to 0.5% to 1%.

At that time, Rick already expected disruption from the virus to slow credit union loan growth 5% this year, down from his January estimate of 6% and last year’s 6.6% growth.

Kan said MBA’s forecasts are fragile, as events move quickly and impact of the virus is unclear.

The new MBA forecast was prepared Friday, March 6, just before Russia and Saudi Arabia started an oil price war, which contributed to further stock market and interest rate volatility this week.

“If that gets drawn out any more, we can expect a bigger negative impact,” he said.

Kan said he is closely watching consumer spending, which has been the bulwark of the economy’s growth in recent years. The virus has already affected travel, and if people also cut back on eating out, going to movie theaters, and other spending, then consumer spending could contract.

Most of the indicators of consumer confidence, sentiment and actual spending are based on measurements taken before the last week in February, when bond yields inverted again, and the S&P stock market index lost 12% of its value from its Feb. 18 high.

If consumers begin worrying about their income prospects over the next six months, they are more likely to put off buying a house, Kan said.

“If we see the uncertainty continue, at some point we’ll see some pull-back in purchasing activity — if we haven’t already.”