MBA Chief Economist Cites Stronger Economy, Housing Market

NEW YORK–Mortgage Bankers Association Chief Economist Mike Fratantoni said the economic tea leaves suggest a “very positive backdrop” for the nation’s housing and mortgage markets.

Speaking at a press luncheon here at the MBA National Secondary Market Conference & Expo, Fratantoni said stronger gross domestic product growth and job growth point to a stronger housing market.

“We’re seeing that reflected in a much stronger purchase market in our Weekly Applications Survey,” Fratantoni said. “Many mortgage lenders are reporting that the past March was their strongest March purchase market ever. We seem to have passed a demarcation line in which most mortgage applications measures have passed the 2007 low point. We see a few markets where home equity still has trouble picking up, but overall the market supports new home building and home price appreciation.”

Fratantoni noted housing inventory remains quite tight, particularly at the entry home level; “but people who want to move up in the market are finding it increasingly easier to do so. We’re seeing year over year growth in every loan size, including the entry market.”

MBA sees economic growth of 2.0-2.5 percent through 2016, along with average job growth of about 150,000 per month. “You only need about 100,000 new jobs per month to keep the unemployment rate steady,” Fratantoni said. “Our expectation is that the unemployment rate will drop to about 4.7 percent by year end, coinciding with a pickup in wage growth.”

This growth, Fratantoni said, is having an effect on Federal Reserve thinking. “The job market has met the Fed’s goal–they are fine with inflation; and feel symmetrically that they don’t want to very too far in either direction,” he said. “Oil prices are creeping back up, which will feed into higher headline inflation and core inflation as well.” He added that the Fed will likely look at two rate hikes this year, most likely in June or July, and four rate hikes per year in subsequent years to reach a rate of 3.375 percent by 2018.

For full year 2016, MBA expects $1.6 trillion in mortgage originations ($973 billion in purchase originations and $635 billion in refinances), with strong purchase growth and refis dropping off, a pattern that holds through 2018. “It’s an extraordinarily sensitive market that shows influxes over the slightest change in rates,” he said.

Fratantoni said a major challenges facing the industry is cost to originate; the most recent MBA quarterly Mortgage Bankers Performance Report showed the average cost to originate has topped $7,000 per loan, a significant increase from $4,000 a few years ago.
“No silver bullet has been found to bring down those costs,” Fratantoni said. “Now that we are through the major implementation phases of new regulations, the industry might be able to move forward toward better efficiencies.”

Fratantoni added that a few more quarters will likely be need to fully assess the impact of the TILA/RESPA Integrated Disclosure rule (Know Before You Owe) and other regulations on lenders to see whether those increased costs to originate are permanent.