Mortgage Originations Expected to Fall in 2022

The Mortgage Bankers Association forecast that total mortgage originations will fall 33% next year as rising interest rates cause refinances to fall sharply while purchases rise modestly.

The MBA’s economic team presented the forecast Sunday at its annual meeting in San Diego. It showed the $2.58 trillion in originations in 2022 will fall 2% to $2.56 trillion in 2023 and remain near that level in 2024.

The main changes from its previous Sept. 21 forecast were higher-than-expected refinancing through the end of 2022 and slightly lower purchases through the end of March 2022. Its economic outlook showed lower-than-expected growth in the gross domestic product in the second half of this year, and higher-than-expected home prices in this year’s second half and the first quarter of 2022

The MBA said it expects lenders to originate $1.72 trillion in purchase mortgages next year, up 9% from 2021. It raised its forecast for refinancing slightly to $860 billion, which is still 62% lower than the $2.26 trillion it expects this year.

MBA Chief Economist Mike Fratantoni said higher mortgage rates and fewer eligible homeowners are behind the declines in refinance volume. He said the Federal Reserve will respond to elevated inflation and falling unemployment rates by starting to taper its asset purchases by the end of this year and raising short-term rates by the end of 2022.

The MBA’s baseline forecast was for mortgage rates to rise, with the 30-year, fixed-rate mortgage expected to end 2021 at 3.1% and rising to 4.0% by the end of 2022.

Fratantoni said the 2022 forecast assumes continued strong economic growth and easing of the supply chain constraints that have curbed some economic activity this year.

“The economy and labor market rebounded in 2021, but overall growth fell short of expectations because of stubborn supply chain issues that fueled faster inflation, slowed consumer spending and presented challenges in filling the record number of job openings available,” Fratantoni said.

The MBA forecast record purchase originations over the next two years pushed by robust homebuyer demand from millennial households, households seeking more space and still-low mortgage rates.

“Home builders will have more success overcoming current building material shortages and should be able to increase the pace of construction to meet the sizable demand for buying,” Fratantoni said. “More newly built homes and more homeowners listing their homes for sale should lead to some deceleration in home-price growth next year.

“The job market should continue to improve as the pandemic is hopefully behind us, helping to get the economy to full employment by the end of this year,” Fratantoni said. “Household incomes will rise, more homes will be on the market and home sales should meaningfully increase as a result, even in the face of somewhat higher mortgage rates.”

Joel Kan, assistant vice president of economic and industry forecasting, said housing has become less affordable this year, especially for first-time homebuyers. Average loan sizes have grown, reflecting home prices reaching record highs and new homes that are bigger and more expensive than in the past.

Nevertheless, Kan said home-price growth will moderate as for-sale inventory grows, but lenders will need to find ways to increase credit availability, which is still 30% lower than pre-pandemic levels.

“Mortgage supply will need to increase modestly so that qualified buyers can get access to financing for their home purchase,” Kan said. “This will be important for the wave of potential first-time homeowners who are approaching prime homeownership age.”

MBA data shows mortgage originations peaked in the fourth quarter of 2020 at $1.36 trillion, 70% from refinances. Originations were expected to be $785 billion in this year’s fourth quarter — half from refinances.

Marina Walsh, vice president of industry analysis, said the extraordinary production profits of 2020 are fading further into the past. She said competition will become more keen as purchase mortgages become a larger part of a smaller pool.

“Many lenders will rely more heavily on their servicing business to achieve financial goals,” Walsh said. “Higher mortgage rates mean fewer prepayments and a longer revenue stream of servicing fees combined with higher mortgage servicing right valuations.”