MBA: Refinances to Rebound

The Mortgage Bankers Association raised its forecasts for refinances sharply through the end of 2026 in the wake of Fed rate cuts and expectations of more.

The MBA’s Sept. 23 forecast said it expects rates on 30-year, fixed rate mortgages to fall faster than it expected a month ago — before the Fed cut rates 50 basis points on Sept. 18 and signaled it would cut by about 50 bps more by year’s end.

The MBA said it expects 30-year rates to fall to 6.2% by year’s end, down from an Aug. 15 forecast of 6.5%. The new forecast said it expects rates to fall to 5.8% by the end of next year — 10 bps lower than it forecast a month earlier.

MBA data showed refinances hit a peak of $933 billion in the fourth quarter of 2020, and began falling dramatically in early 2022 as the Fed began raising rates. Refinances hit a low of $46 billion in 2023’s first quarter and had crawled up to $122 billion by this year’s third quarter.

But the MBA’s Sept. 23 forecast showed this year’s fourth-quarter volume hitting $212 billion — surpassing the $200 billion mark for the first time since 2022’s second quarter and four times higher than the $52 billion in 2023’s fourth quarter. It said it expects refis to rise 71% to $878 billion next year and fall 8% to $806 billion in 2026.

That reflected upward revisions from the Aug. 15 to the Sept 23 refinance forecasts of 63% for the fourth quarter, 49% for 2025 and 24% for 2026.

The MBA gave purchase mortgages a softer touch. It lowered its forecast for the fourth quarter by 4.4%, raised 2025 by 2.1% and lowered 2026 by 1.1%. With those changes, the MBA now expects fourth-quarter purchases will be $325 billion, up 7.3% from a year earlier. It then expects purchases to rise 15% to $1.5 trillion in 2025 and rise 8.4% to $1.6 trillion in 2026 — still short of the peak of nearly $1.9 trillion in 2021.

The MBA’s forecasts are usually completed closer to mid-month, which means they typically follow by a few days the National Realtors Association’s reports on existing home sales. This month’s MBA forecast was able to incorporate the NAR’s report released Sept. 19 showing existing home sales fell 2.5% from July to August after seasonal adjustments.

“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” NAR Chief Economist Lawrence Yun said. “The home-buying process, from the initial search to getting the house keys, typically takes several months.”

Purchases have a bigger dollar base than refinances, so smaller percentage revisions have a bigger impact on dollar changes, which is reflected in total originations.

The MBA said it expects $537 billion in total originations in the fourth quarter, up 51% from a year earlier. It then expects total originations to rise 31% to nearly $2.4 trillion in 2025 and rise slightly to just over $2.4 trillion in 2026.