Mortgage Forecast Dims as High Rates Linger
MBA cuts its estimate for originations by 6% through the end of 2024 as the economy shows resilience and Feds raise rates.
The Mortgage Bankers Association (MBA) lowered its expectations for originations by about 6% through the end of 2024 as interest rates remain much higher than its earlier forecasts and home sales dipped in July.
The National Association of Realtors (NAR) reported Tuesday that existing homes sold at a seasonally adjusted annual rate of 4.07 million in July, down 2.2% from June and down 16.6% from July 2022.
“Two factors are driving current sales activity — inventory availability and mortgage rates,” NAR Chief Economist Lawrence Yun said. “Unfortunately, both have been unfavorable to buyers.”
The MBA’s forecast dated Monday amplified the drop in originations this year by both lowering expectations for 2023’s second half while also raising its estimates of 2022 originations by 2.7%. Estimates for this year’s first half were unchanged. The MBA said it still expects both purchase and refinance originations to begin showing gains from year-ago levels in the fourth quarter, but with smaller gains than shown in its previous forecast dated July 20.
Purchase originations for the second half were revised downward 2.5% to $734 billion, which would be 0.7% lower than a year earlier. Second-half refinance originations were lowered 17% to $175 billion, which would be 7.4% higher than a year earlier.
For 2024, the MBA lowered its expectations for purchases by 5% and refinances by 10%. It now expects purchase originations to rise 11% to $1.52 trillion, while refinances jump 60% to $531 billion.
One of the main variables driving the MBA’s lowering of estimates over the past 10 months has been interest rates. Last October, the MBA forecast the rate for 30-year fixed mortgages this year would be 5.5% by Sept. 30 and 5.4% by Dec. 31. Now, as interest rates top 7%, it is forecasting 6.8% by Sept. 30 and 6.2% by Dec. 31.
Interest rates, in turn, have been influenced by the economy’s unexpected resilience, which has factored in the Fed’s decision to keep raising rates through at least last month.
The recession that the MBA predicted last October would start in early 2023 has now been pushed back another quarter and further weakened to a 0.3% drop in GDP in the fourth quarter and a 0.3% drop in the first quarter of 2024.
Meanwhile, the NAR found buyers facing higher prices as tight inventories improved only slightly.
The median existing-home sales price rose 1.9% from one year ago to $406,700. Prices rose in the Northeast, Midwest and South but were unchanged in the West.
The inventory of unsold existing homes increased 3.7% from the previous month to 1.11 million at the end of July. Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in June and 3.2 months in July 2022.
The NAR found first-time buyers were responsible for 30% of July sales, up from 27% in June and 29% in July 2022.
“Most homeowners continue to enjoy large wealth gains from recent years with little concern about home price declines,” Yun said. “However, many renters are concerned as they’re facing growing affordability challenges because of high interest rates.”