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The Mortgage Bankers Association's outlook for the next nine months is more pessimistic than a month ago, but it is still pointing to slightly higher volume from home buyers and a sharp increase from refinancing.
The MBA's Oct. 27 forecast lowers its expectations for purchases by 6% for this year's fourth quarter and next year's first half from its Sept. 23 forecast. It lowers its forecast for refinances by 5% in the fourth quarter and 7% in the first half of 2025.
The forecast, which extends its horizon to 2027 and was released at its Annual Convention & Expo in Denver Sunday, expects:
- Lenders will close on $304 billion in purchase originations in the three months ending Dec. 31, up a bare 0.3% from 2023's fourth quarter, and $687 billion in the six months ending June 30, 2025, up 9.6% from a year earlier.
- Fourth-quarter refinances to reach $202 billion — nearly four times higher than a year ago, and first-half refinances to reach $407 billion — more than double those of a year earlier.
- 2007 purchase originations to rise 4% to $1.70 trillion, and refinances to fall 1% to $798 billion.
Chief Economist Mike Fratantoni said the MBA is forecasting a slowdown in economic growth and the unemployment rate rising from 4.1% in September to 4.7% by the end of 2025, despite an economy that has been stronger than expected this year.
The Oct. 27 forecast is also slightly more pessimistic on rates for 30-year, fixed rate mortgages. It expects them to end this year at 6.3% and 2025 at 5.9% and change little over the next two years. Its Sept. 23 forecast expected rates to end this year at 6.2% and 2025 at 5.8%.
Mike Fratantoni "Monetary policy has turned the corner with the first rate cut in September 2024," Fratantoni said. "The expectation of further rate cuts has already been baked into mortgage rates, and we expect mortgage rates are likely to remain within a narrow range around 6% for the foreseeable future."
The MBA lowered its 2025 sales forecasts for existing homes by 3% and new homes by 1%, but still expects existing home sales to rise 6.6% and new homes to rise 11.6% next year.
"We are bullish about the spring 2025 housing market," Fratantoni said. "Mortgage rates at this level should support homebuyer demand and gradually reduce the lock-in effect, thereby increasing the inventory of existing homes and supporting higher purchase origination volume in 2025."
Even as the Fed cuts short-term rates, Fratantoni said the risk of growing budget deficits will keep longer-term rates from falling further.
"The spread between mortgage and Treasury rates — at around 240 basis points currently — remains roughly half a percentage point wider than historical averages," he said. "MBA expects additional narrowing of this spread in 2025 as investors reallocate out of cash and into longer-term assets."
Deputy Chief Economist Joel Kan said that younger buyers entering the market will continue to support housing demand — to the extent they can afford to buy. Median purchase mortgage payments are still elevated, while costs are rising for homeowners' insurance premiums and property taxes.
Joel Kan "There has been growth in purchase applications for both new and existing homes, with application levels above last year's pace," Kan said. "Mortgage rates are lower than they were a year ago, and for-sale inventory has started to grow somewhat, which is helping to ease price pressures in many markets."
"It is also encouraging that an increasing share of first-time homebuyers have turned to newly built homes as an option, given the lack of previously owned starter homes on the market. These factors should support a bigger gain in purchase activity early next year, especially if mortgage rates remain near these levels or decline further," Kan said.
Marina Walsh, the MBA's vice president of industry analysis, said lenders started making profits from originations in the second after eight consecutive quarters of net production losses.
Marina Walsh "Production volume began to pick-up in the second quarter which led to a reduction in per-loan costs," Walsh said. "With more volume forecast in 2025 and 2026, lenders may be poised to increase their head counts after two of the most difficult years in the mortgage business, but cost escalation remains an ongoing concern."
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