High Rates Dampen Mortgage Prospects – Again

The Mortgage Bankers Association lowered its originations forecast again this month, but not as severely as it did in April.

Meanwhile, a report released Monday by FreddieMac economists said it expects “modest growth” in mortgage originations for purchases this year, largely driven by rising prices. “We expect refinance origination volumes to decline as homeowners have already secured low rates, posing potential challenge in the refinance market.”

The MBA’s May 16 forecast limited changes to its forecasts for first-mortgages for purchases, lowering them 3% in this year’s second quarter, and 3% for 2025 and 2026. The MBA said it now expects lenders will close on $336 billion in purchase mortgages in the three months ending June 30, down 9.4% from a year earlier.

For the year, the MBA said it expects $1.38 trillion in purchase originations, up 4.4% from 2023, while forecasting refinances will grow 34% to $422 billion.

Together the MBA said it expects total originations will rise 10% to $1.8 trillion this year. That’s way down from its March 21 forecast, when it expected total originations this year would rise 23% to just over $2 trillion. The MBA cut that number back 10% in its April 18 forecast, and 1% more this month.

Beyond this year, the MBA forecast purchase originations will rise 8.4% to $1.5 trillion in 2025, and rise 9% to $1.63 trillion in 2026.

The MBA said it continues to expect refinances will rise 39% to $585 billion in 2025 and rise 10% to $646 billion.

The May 16 forecast now expects the rate for 30-year mortgages will end the year at 6.5%, up from 6.1% in its March 21 forecast and 6.4% in its April 18 forecast.

The FreddieMac report said higher interest rates will rein in economic growth through the end of 2025. It expects the Fed to lower rates only once in 2024 with the cut coming toward year’s end.

“As a result, we expect mortgage rates to remain elevated through most of 2024,” the report said. “These high interest rates will prompt prospective buyers to readjust their housing expectations, but we anticipate housing demand to remain high due to favorable demographics, particularly in the starter home segment.”

“We anticipate improvement in home sales compared to 2023, albeit by a slim margin, as the rate lock-in effect will delay existing homes from entering the market,” the FreddieMac economists said.

The MBA’s weekly survey found mortgage applications in the week ending May 10 were 0.5% higher than the previous week after seasonal adjustments.

Purchase applications fell 2% from one week earlier after seasonal adjustments, and fell 14% from a year earlier. Refinances rose 5% from a week earlier and rose 7% from a year earlier.

Joel Kan, the MBA’s deputy chief economist, said Treasury yields continued to move lower in early May and mortgage rates declined for the second week in a row, with the 30-year fixed rate down 10 basis points to 7.08%, the lowest level since early April.

“The decline in rates led to a small boost to refinance applications, including another strong week for VA refinances,” Kan said. “However, the overall level of refinance activity remains low.”

Kan said the fall in purchase applications was driven largely by a 9% drop in FHA purchase applications. Conventional home purchase applications were down about 1%.

“While the downward move in rates benefits prospective homebuyers, mortgage rates are still much higher than they were a year ago, while for-sale inventory remains tight,” Kan said.