MBA and CUNA See Rates Falling in 2024

Forecasts released earlier this month by CUNA and the Mortgage Bankers Association predicted falling interest rates, but might have missed the velocity of the change and their impacts.

On Wednesday, the National Association of Realtors reported existing homes sold in November at a seasonally adjusted annual rate of 3.82 million. While that was only 0.8% higher than October, it broke a five-month streak of declines.

“The latest weakness in existing home sales still reflects the buyer bidding process in most of October when mortgage rates were at a two-decade high before the actual closings in November,” NAR Chief Economist Lawrence Yun said. “A marked turn can be expected as mortgage rates have plunged in recent weeks.”

The Mortgage Bankers Association is still predicting a recession for the New Year, but CUNA thinks the odds favor continued growth.

Besides that, most of the two organizations’ predictions are similar.

The MBA forecast was dated Dec. 12, the day before the Federal Open Market Committee signaled three rate cuts for 2024 with most members projecting the federal funds rate would fall to 4.6% by the end of 2024 – half a percentage point lower than their projections three months earlier.

“The November data on employment, inflation and the December FOMC meeting all moved markets to sharply reduce interest rates, a clear positive for the pending spring home buying market,” the MBA said in a commentary released Dec. 18.

The MBA has been predicting a mild recession since October 2022, then for the first half of 2023, and gradually kicking the can down the road. Since this past August, the MBA has predicted a recession for the first half of 2024.

The MBA is sticking with its first-half recession prediction, saying gross domestic product will retreat at an annual rate of 0.3% in the first quarter from the fourth quarter and fall 0.5% in the second quarter.

CUNA’s forecast dated Dec. 4 and released to the public Dec. 15 put the chances of recession anytime in 2024 at 33%.

The MBA said it expects the currently strong labor market to weaken. Unemployment, which was 3.7% in November, is expected to rise to 5% by the end of 2024. CUNA predicted it will rise to 4.3%.

Both said they expect inflation to slow further. The MBA said it expects the Consumer Price Index to ebb from its 3.1% level in November to reach 2.3% by the end of 2024, before reaching the Fed’s 2% target by June 2025. CUNA said it expects CPI to fall to 2.5% by the end of 2024.

But the MBA’s Dec. 12 forecast for Dec. 31 seems to have missed how fast interest rates are dropping.

It predicted the 30-year fixed mortgage rate would end the year at 7.4%. The MBA reported Wednesday that the 30-year fixed mortgage rate fell to 6.83% in the week ending Dec. 15, its lowest level since June 2023.

The Dec. 12 forecast predicted the 10-year Treasury yield would end the year at 4.5%. It ended Tuesday at 3.91%.

The MBA said it expects the yield on 10-year Treasury notes to fall to 3.7% and 30-year fixed mortgages to fall to 6.1% by the end of 2024. Those two rate forecasts are essentially unchanged since September, when they were raised from forecasts of a 5% 30-year mortgage rate and 3.1% Treasury yield by the end of 2024.

“Longer-term rates have dropped sharply in response to the Fed’s pivot motivated by these recent incoming data,” the MBA said.

The mortgage originations part of the MBA’s forecast, usually the focus of CU Times coverage, included its Nov. 17 forecast that contained major upward revisions for 2024 mortgage production. However, origination forecasts barely changed between the Nov. 17 and Dec. 12 versions.

Mortgage origination volume is expected to increase 22% to just over $2 trillion in 2024, with purchases rising 14% to $1.51 trillion and refinances rising 56% to $490 trillion, both from low bases. In units, the 4.3 million loans expected to be originated in 2023 would be the fewest since at least 1997.

The MBA forecast a 6% increase in existing home sales and 10% increase in new home sales in 2024.

“Coupled with ongoing, but slower, growth in home prices, this sales growth will support higher purchase volume,” the MBA said. “The lock-in effect will continue to suppress existing inventory, which opens the opportunity for builders to provide a higher share of total sales.”

CUNA forecast annualized net income will be 0.65% of average assets in the fourth quarter, 0.70% for the full year and 0.55% for 2024.

But the year’s ROA would be 0.73%, if fourth-quarter ROA is 0.65%, as predicted, and assets grow at an annual rate of 3% to 4%.

The CUNA forecast also showed:

• Credit union loan growth slowing from 8% this year to 4% in 2024, while savings, which are flat this year, are expected to rise 3% in 2024.
• The loan-to-savings ratio ending this year at 88.3% and next year at 88.1%. It ended 2022 at 81.5%. CUNA’s monthly estimates showed previous peaks of 86.0% in January 2019 and 86.1% on Oct. 31.
• The 60-day-plus delinquency rate ending this year at 0.75%, its highest year-end rate since 2017, and ending 2024 at 0.90%. The net charge-off ratio is expected to rise from 0.55% for the 12 months of 2023 to 0.65% for 2024.
• Credit card delinquency rates at banks and credit unions were about the same in July 2022, but since then banks have trended higher. As of Sept. 30, delinquency rates were 2.6% at banks and 1.9% at credit unions.
• Credit unions trending lower than banks and finance companies for delinquency rates on auto loans over the span shown 2005 to September 2023. The difference has widened since 2021 with rates at Sept. 30 being 0.7% for credit unions, 1.3% for banks and 2.4% for finance companies. Among all auto lenders the delinquency rate in September was 1.5%.