MBA Sticks With Recession Prediction, but It's Not All Bad News
But its latest forecast shows only a shallow mid-year drop in GDP as its outlook brightens for home sales this year.
Ignoring a potential U.S. default on its debts and other dangers, the economy continues to supply occasional pleasant surprises.
Take the Mortgage Bankers Association’s latest forecast, which still shows two back-to-back quarters of decline in gross domestic product. While the MBA told CU Times Tuesday it is “still predicting a mild to moderate recession for later in 2023,” the numbers it forecast might barely qualify.
On top of that, Tuesday’s Census Bureau report on new home sales beat the MBA’s forecast, and showed a continuing improvement since last fall.
The MBA’s May 19 forecast also showed almost no change in mortgage originations since its previous April 17 forecast. The tweaks it did make were confined to the second quarter, raising its forecast for total first-mortgage originations by 0.4% to $463 billion.
Purchase originations was revised upwards 1.6%. It now expects $371 billion in second quarter originations, down 22% from a year earlier.
Refinance originations were revised downwards 4.2%. It now expects $92 billion in second-quarter refinances, down 54.2% from a year earlier.
Back in October 2022, the MBA forecast a recession would occur in early 2023. Its Oct. 23, 2022 forecast showed GDP falling for three consecutive quarters: 0.7% in the fourth quarter of 2022, 1.9% in the first quarter and 0.7% in the second quarter.
The MBA is now forecasting GDP will fall only 0.6% in the second quarter and 0.4% in the third quarter, with slow improvement through 2024. A month ago, it had forecast drops of 1.2% in the second quarter and 0.5% in the third quarter.
In the past, it was almost always true that two consecutive quarters of economic contraction would later be deemed a recession by the judges in the matter: The National Bureau of Economic Research (NBER), a nonprofit group based in Cambridge, Mass., that declares recessions and sets their start and end dates.
But that correlation broke when last year’s GDP drops of 1.6% in the first quarter and 0.6% in the second quarter did not rate a “recession” label.
The MBA’s May 19 forecast also tweaked many of its underlying assumptions about the economy, raising its expectations for new and existing home sales through September, home prices through March 2024 and interest rates through December 2024.
The MBA now forecasts that the rate for 30-year fixed mortgages will be 6.4% at the end of June, instead of the 6.2% rate it forecast a month ago and up from the actual 5.3% rate in June 2022. It said it expects the year-end rate to be 5.6%, up 10 basis points from its April 17 forecast and up from the actual rate of 6.6% in December 2022.
MBA Deputy Chief Economist Joel Kan said the MBA’s Builder Application Survey released May 19 shows applications for new home purchases in April were 4.1% higher than a year earlier and fell 11% from March without seasonal adjustments.
“Purchase applications for newly constructed homes declined in April but were up 4% compared to a year ago,” Kan said. “This was the third straight month of year-over-year growth in applications, which signals improving housing demand for newly built homes at a time when the broader housing market is leaning more on new construction to boost for-sale inventory levels.”
Kan added that mortgage rates have settled in the 6.5% recently, remain over a percentage point higher than last year and continue to affect both buying and selling decisions.
“Since the brief pick-up in new home sales in January when mortgage rates dipped, the pace of new home sales has declined for the three consecutive months,” Kan said. “With the recently released Census data showing single-family permitting activity on the upswing and housing starts also rising, we expect that to translate to growth in new home sales activity in the second half of the year.”