Mortgage Prospects Brighten for Credit Unions

Existing home sales continued to edge up from September to October and the Mortgage Bankers Association raised its origination forecasts for the second half of this year.

On Monday the National Association of Realtors reported existing homes were sold at a seasonally adjusted annual rate of 6.34 million in October, up 0.8% from September and down 5.8% from October 2020. From August to September, sales rose 7%.

“Outside of last winter’s surge, which made up for missed sales following COVID-19’s arrival, present sales are at their highest level since 2006,” NAFCU Chief Economist Curt Long said Tuesday. “According to Freddie Mac, the average rate on a 30-year mortgage increased by 17 basis points in October, but that has not made a meaningful dent in sales.”

Joel Kan, the MBA’s assistant vice president of economic and industry forecasting, said the report showed home sales holding steady even as housing demand continues to be held back by insufficient supply.

“Nevertheless, it was positive news that home sales increased for the second month in a row and at the fastest pace of sales since January 2021,” Kan said. “Similar to MBA’s recent weekly data on purchase mortgage applications, home sales are still running below last year’s elevated pace but have shown some renewed strength recently.”

On Monday, the MBA released its monthly forecast revision, which only changed expectations for mortgage originations in the third and fourth quarters. Refinance originations for the third quarter of 2021 was revised upward by 2% and the fourth quarter was raised 12%. Purchase originations expected in the third quarter was raised 6%.

The MBA showed purchase originations falling 4% from the second quarter to the third quarter, and falling another 12% in the fourth quarter. For the year, the MBA forecast purchase originations will rise 9% to $1.61 trillion, followed by gains of 7% in 2022 and 2023.

Refinance originations fell 13% from the second quarter to the third quarter, and fell 13% again in the fourth quarter. For the year, the MBA forecast refinances will fall 12% to $2.32 trillion. It forecast refinances falling 63% to $860 billion in 2022 and dropping another 21% in 2023.

Total originations fell 9% from the second quarter to the third quarter, and 13% in the fourth quarter. With purchases becoming a larger part of the mix, total originations are expected to fall 4% to $3.93 trillion for 2021, and fall another 34% in 2022 and drop 4% in 2023.

The NAR reported that half of all existing homes sold for at least $353,900 in October, up 13.1% from the median price a year earlier.

“Home sales remain resilient, despite low inventory and increasing affordability challenges,” NAR Chief Economist Lawrence Yun said. “Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.”

Based on current sales, there were 2.4 months of supply at the end of October, about the same as the previous month. Long said analysts consider six months of inventory to be a rough balance between supply and demand.

“It will take a large reduction to demand to impact sales levels and the pace of price appreciation,” Long said. “Inventory levels remained near all-time lows in October, but the fact that rental prices are also increasing rapidly reduces the effects of home price growth.

“There are some promising developments on the construction front, but that will take time to make an impact in the resale market,” Long said. “NAFCU expects housing to continue on its present trajectory for the foreseeable future.”