MBA Projects 10% Increase in 2016 Purchase Originations
SAN DIEGO–The Mortgage Bankers Association projects $905 million in purchase mortgage originations in 2016, a 10 percent increase from 2015.
MBA noted, however, that a sharp drop in refinance originations–by nearly one-third, to $415 billion from $630 billion in 2015–results in an overall decrease in mortgage originations, to $1.32 trillion in 2016 from $1.45 trillion in 2015.
“We have become increasingly more optimistic about the home purchase market,” said MBA Chief Economist Mike Fratantoni here at the MBA 102nd Annual Convention & Expo.
Looking ahead to 2017, MBA forecasts purchase originations of $978 billion and refinance originations of $331 billion, totaling $1.31 trillion. MBA upwardly revised its estimate of 2014 originations to $1.26 trillion from $1.2 trillion, to reflect recently reported Home Mortgage Disclosure Act data.
“Refinance activity will continue to decline as there are few remaining households that can benefit from an interest rate reduction and because interest rates will gradually begin to rise from historic lows in the coming years,” Fratantoni said. “Home equity products may see an increase in demand as home prices continue to increase at a slower rate.”
Fratantoni said the U.S. housing market continues on its path toward more typical levels of turnover based on steadily rising demand and improvements in the supply of homes for sale and under construction. “Despite bumps in the road from energy and export sectors, the job market is near full employment, with other measures of employment underutilization continuing to improve,” he said.
Fratantoni said strong household formation, improving wages and a more liquid housing market should drive home sales and purchase originations in the coming years; MBA projects overall economic growth of 2.3 percent in both 2016 and 2017 and 2 percent over the long term. He said growth should be driven primarily by consumer spending as more households continue to purchase durable goods, such as autos and appliances.
“The housing sector will contribute more to the economy more than it has in recent years,” Fratantoni said.
MBA forecasts a 17 percent increase in single-family housing starts in 2016, along with a further increase of 15 percent in 2017.
“Weaker growth abroad will mean fewer U.S. exports, which will be a drag on growth for the next couple of years,” Fratantoni said. “Recurring flights to quality, a demand for safe assets from investors abroad, will keep longer-term rates lower than the domestic growth environment would warrant.”
As the economy strengthens, Fratantoni said, the Federal Reserve should begin to slowly raise short-term rates, most likely at the end of 2015. “At some point after liftoff, the Fed will begin to allow their holdings of mortgage-backed securities and Treasury securities to run off, likely beginning in late 2016,” he said. “Even with these actions, we expect that the 10-year Treasury rate will stay below 3 percent through the end of 2016 and 30-year mortgage rates will stay below 5 percent.”
MBA anticipates monthly job growth should average 150,000 per month in 2016, down from 200,000 per month in 2015; the unemployment rate should drop to 4.8 percent by year-end 2016, rising to 5.0 percent in 2017 and 2018, the rebound driven by a projected increase in labor force participation rates to more typical levels.
Other forecast highlights:
–Real Gross Domestic Product: 2.5 percent at year-end 2015; 2.5 percent year-end 2016; 2.3 percent year-end 2017.
–Federal Funds Rate: 0.375 percent year end 2015; 0.875 percent year-end 2016; 2.375 percent year-end 2017.
–Thirty-Year Fixed-Rate Mortgage Rate: 4.0 percent year-end 2015; 4.8 percent 2016; 5.4 percent 2017.
–Housing Starts: 1.140 million year-end 2015; 1.310 million 2016; 1.380 million 2017.
–Purchase Originations: $821 billion year-end 2015; $905 billion 2016; $978 billion 2017; 1.022 trillion 2018.
–Refinance Originations: $630 billion year-end 2015; $415 billion 2016; $331 billion 2017; $275 billion 2018.
