MBA Expects More Bounce in Spring

The Mortgage Bankers Associations said it expects more of this year’s rebound in first mortgage originations will occur this spring and summer rather than in the first and fourth quarters.

The biggest changes in the MBA’s March 21 forecast were its upward revision of purchase originations by 6.3% for the second quarter, and lowering the first-quarter forecast by 4.3%. It also raised the purchase origination forecast upward slightly in the third quarter, then lowered it slightly for the fourth quarter.

Refinance projections were unchanged.

Those changes revised the year’s forecast for purchases upward by 0.6% and total originations upward by 0.4%. Total originations this year are expected to rise 23% to $2.01 trillion.

A report released Monday by Freddie Mac economists didn’t put numbers on their expectations for this year’s originations, but the economists predicted the 2024 rebound would be soft.

The report said that despite a robust economy, inflation remains higher than the Fed’s target, “which could keep mortgage rates higher for longer.” That will keep more homeowners feeling locked in their homes, reluctant to swap their current low-rate mortgage for a high-rate mortgage on a higher-priced home.

“The rate lock effect has been a key barrier to home sale volumes,” the report said.

Freddie Mac’s Primary Mortgage Market Survey showed mortgage rates resumed their upward trajectory in February and averaged 6.8% for the month.

The Freddie Mac economists said they expect modest economic growth this year, a slight increase in unemployment and inflation slowing, but remaining above the 2% target.

“Therefore, we expect the Federal Reserve to not cut rates until the summer at the earliest and potential upside surprises on inflation could push rate cuts out even further. As a result, treasury yields will remain elevated in the near term, keeping mortgage rates elevated. We forecast mortgage rates to stay above 6.5% through this quarter and next,” they said.

Unless inflation worsens, the Freddie Mac economists “expect a modest recovery in home sales as mortgage rates drift down in the latter half of the year.”

“The recovery, however, will be limited as the rate lock effect will prevent homes from coming on the market,” they said. “We expect upward pressure on home prices to remain as more first-time homebuyers continue to flood the housing market that is plagued by a lack of supply. As a result, we forecast home prices to increase 2.5% in 2024 and 2.1% 2025.”

The Freddie Mac economists expect total mortgage origination to remain low through most of 2024, but start to increase at the end of this year and rise modestly in 2025.

“Our view on originations is subdued since a modest recovery in home sales coupled with a rising share of cash purchases will restrict purchase origination volumes from growing significantly,” they said. “Although we expect mortgage rates to drift down, there will be limited refinance activity as many homeowners have locked in historically low mortgage rates and the incentive to refinance is close to non-existent for a large share of homeowners.”

The MBA’s March 21 forecast expects purchase originations this year to rise 16% to $1.54 trillion.

First quarter purchase originations are expected to be $291 billion, up 9% from a year earlier, while second-quarter originations are expected to rise 10% to $408 billion.

This year’s refinance originations are expected to rise 50% to $471 billion. First-quarter refinances are expected to rise 30% to $86 billion, and then rise 20% to $110 billion.