New Forecast Shows Mortgage Originations Continue to Fall as Rates Rise

Mortgage originations ended the year slightly higher than the Mortgage Bankers Association had previously expected, but its latest forecast lowers its estimate for refinances in the first quarter.

The overall trends were unchanged: Refinances are dropping sharply and will continue to do so through the end of 2023 as mortgage rates rise. Purchase originations are increasing moderately and will continue to rise through 2023.

The MBA’s Jan. 21 forecast showed total originations in the three months ending Dec. 31 were $893 billion — 7.1% higher than in its Dec. 21 forecast. The revised amount is still 34% lower than a year earlier caused by declines in refinances.

On Thursday, the MBA reported mortgage applications in the week ending Jan. 21 fell 7.1% from the previous week, following two weeks of gains.

Joel Kan, the MBA’s assistant vice president of economic and industry forecasting, said the 30-year fixed rate rose for the fifth consecutive week to its highest level since March 2020, and is now 77 basis points higher than it was a year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.72% from 3.64%, with points decreasing to 0.43 from 0.45 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.

The MBA said it expects the rate to rise to 4% by the end of this year, and 4.3% by the end of 2023.

The MBA’s Weekly Mortgage Applications Survey showed its refinance index fell 13% from the previous week and 52% from a year earlier. The refinance share of mortgage activity decreased to 55.8% of total applications from 60.3% the previous week.

“Unsurprisingly, borrower demand for refinances subsided, with applications falling for the fourth straight week,” Kan said. “After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance. Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”

The MBA’s purchase index fell 5% from a week ago and 11% from a year ago.

“The decline in purchase activity was led by a 5% drop in government applications, compared to a modest less than 1% decline in conventional applications,” Kan said. “The relative weakness in government purchase activity continues to contribute to higher loan sizes. The average purchase loan size was $433,500, eclipsing the previous record of $418,500 set two weeks ago.”

In its monthly forecast update, purchase originations for the fourth quarter were revised upward 8.7% to $424 billion, which matched originations in 2020’s fourth quarter.

Refinance originations for the fourth quarter was revised upward 5.6% to $469 billion. The revised amount was half the amount in 2020’s fourth quarter, when the re-fi wave crested at $933 billion.

The MBA also lowered its first-quarter forecast for refinance originations by 2.8% to $308 billion.

The first-quarter purchase forecast was unchanged: It is expected to rise 12.5% to $360 billion.

For the full year of 2021, the changes mean total originations were revised upward 1.5% to $3.99 trillion. The revised amount is down 2.8% from 2020.

For 2022, total originations were revised downward a scant 0.3% to $2.60 trillion. The revised amount is 35% lower than 2021.