Mortgage Forecast Lowered for Spring and Summer, MBA Data Shows
Mortgage Bankers Association expects purchase originations to fall deeper, but shrinks its forecasted recession.
The Mortgage Bankers Association’s latest monthly forecast showed its economists believe its projected first-half recession will be milder than they expected a month ago, but they expect originations to slump further in the spring and summer.
A recession has almost always been eventually declared after two quarters in a row of drops in gross domestic product. But that didn’t happen last year when inflation-adjusted GDP fell 1.6% in the first quarter and 0.6% in the second quarter.
MBA economists have been predicting a recession in the first half of 2023 since last October, but its size shrank this month. In its Jan. 19 forecast, the MBA predicted a 1.8% first-quarter drop and a 1.4% second-quarter drop in real GDP. Its Feb. 21 forecast called for a 0.7% drop in the first quarter and a 0.6% drop in the second quarter.
NAFCU chief economist Curt Long, who has held out hope that the nation might avoid a recession this year, said Thursday that he expects more rate hikes from the Federal Open Market Committee: 25 basis points at its meeting ending March 1, and 25 bps at its May 2-3 meeting.
“It’s difficult to predict beyond that point, but while it’s possible we could get further hikes after May, I believe it’s unlikely that we see a rate cut this year,” Long said.
Minutes released this week from the FOMC’s January meeting showed that members who favored stiffer rate hikes were concerned by the extent financial conditions eased after inflation peaked. Long said those sentiments will be bolstered by the continuing strength of the labor market and “the decent economic returns so far in 2023.”
Meanwhile, the mortgage market will continue to … draw in air.
The MBA’s Feb. 21 forecast showed purchase originations of $376 billion in the second quarter, down 21% from a year earlier. Third quarter purchases are expected to be $383 billion, down 1.3% from a year earlier. Both the second- and third-quarter volumes are about 2% less than in the MBA’s Jan. 19 forecast.
The MBA did not revise its already miserable forecast for refinances. They’re expected to fall 44% to $113 billion in the second quarter and rise 37% to $126 billion in third quarter.
For 2023, total originations are expected to fall 17% to $1.87 trillion.
The increased pessimism in part reflected the MBA’s slightly lower expectations for home sales, slower and shallower mortgage rate declines and persistent, if slightly lower, price increases.
Other expectations from the MBA report included:
- Existing home sales are expected to continue falling from year-ago levels through the third quarter, and new homes are expected to continue falling through June. That’s the same from last month’s forecast. What’s different is that the second- and third-quarter drops will be bigger for existing homes. Overall, existing home sales are expected to be down 15% this year, compared with the 12.8% drop in the Jan. 19 forecast.
- Interest rates will fall this year, but not quite as much or as fast as in its previous forecast. The MBA’s Feb. 21 forecast expects fixed rates for a 30-year mortgage will fall from 6.4% in the first quarter to 5.7% in the third quarter and 5.3% in the fourth quarter. Its Jan. 19 forecast showed rates falling below 6% in the second quarter and ending the year at 5.2%.
- Prices for existing homes will rise at a slower pace this year than forecast a month ago. It now expects the median price of an existing home to rise 0.8% from $372,800 in the fourth quarter of 2022 to $375,800 in the fourth quarter of this year. Its Jan. 19 forecast called for a 2.1% increase.
Homes are still drifting further away from the buying power of most households, according to a separate MBA report released Thursday. Homebuyer affordability fell in January, with the national median payment applied for by purchase applicants at $1,964. up 2.3% from $1,920 in December, but down from $1,977 in November. Payments rose by $437, or 29%, since January 2022.
Edward Seiler, the MBA’s assistant vice president for housing economics, said the 16 basis point fall in interest rates from December to January couldn’t compensate for the $12,000 increase in the median purchase application amount to $312,000 in January.
“MBA expects the combination of economic uncertainty, high mortgage rates and persisting affordability challenges to impact purchase demand — especially at the lower end of the market where supply is still tight,” Seiler said.
Mortgage applications for the week ending Feb. 17 were 13% less than the previous week. The MBA’s Market Composite Index for refinances fell 2% and the seasonally adjusted purchase index fell 18% — its lowest level since 1995.
Joel Kan, the MBA’s deputy chief economist, said rising mortgage rates were behind the drop as the 30-year fixed rate jumped 23 basis points to 6.62% — the highest rate since last November.
“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” Kan said. “The increase in mortgage rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”
Kan said refinance applications were more than 70% lower than a year ago. “Given that rates are over 2.5 percentage points higher than a year ago, we expect that refinance activity will remain depressed for some time,” he said.