MBA Economic, Housing Forecast Stays Positive

DALLAS–The outlook for the economy and the real estate finance market is relatively positive for the next several years, said Joel Kan, MBA Associate Vice President of Industry Surveys and Forecasting.

“About 70 percent of economic growth is driven by consumer spending,” Kan said here at the MBA National Mortgage Servicing Conference & Expo. “We’ve benefited from a strong employment rate and a strong jobs market, which should continue for the next several years.”

The MBA forecast calls for average monthly job growth of 181,000 for the next year, which is likely to push up wages, albeit at an uneven pace. “We should see an acceleration in wage growth going forward,” Kan said.

With economic growth near 3 percent, nearly full employment and wages increasing, Kan said the Federal Reserve will increasingly look at inflation, which is close to the 2 percent threshold it considers to be an inflationary environment. “Inflation is firming, and this is another piece the Fed looks at when it considers rate hikes,” he said.

Kan said MBA expects the Federal Open Market Committee to raise the federal funds rate in 2018 and two additional times in 2019, bringing the federal funds rate to 3.125 percent by early 2020.

The housing market outlook also looks healthy, Kan said, with home purchase growth expected to increase by 6 percent in 2018. Home purchase originations are expected to grow to $1.18 billion in 2018. “Going into the spring home buying season, we’re expecting an uptick in activity, which bodes well for the housing market,” he said.

The refinance market is another matter. “Even though we are still in a low-rate market, but a lot of people are sitting on the sidelines, waiting to see what happens with rates,” Kan said, adding that MBA expects mortgage interest rates to increase, to 4.8 percent by year-end and above 5 percent in 2019, to 5.3 percent.

Slow growth in existing and new home sales continues to be the result of tight inventories, Kan said. “Inventories are down to about four months, which is a historically low number,” he said. “We do expect some of these supply constraints to ease over the next couple of years, but home builders continue to be hampered by difficulties in finding laborers to build new homes. And there is no sign that that problem is easing up.”

Home building is based on small, localized networks, Kan noted. “As a result of the Great Recession, it’s been difficult for home builders to get these networks reorganized, which has hampered their ability to accelerate home building,” he said.

The recent tax bill, Kan said, is expected to add about 0.2 percent to the economy, but mostly in consumer spending. From a housing standpoint, the jury is still out, as reductions in the mortgage interest deduction is likely to only affect homeowner in the highest home brackets.

The MBA forecast through 2020 calls for an increase in overall mortgage debt outstanding. “We are going to see enough growth that should overcome supply constraints,” Kan said. “With strong job growth expected to continue, we expect more people to enter into homeownership.”

Marina Walsh, MBA Vice President of Industry Analysis noted a slight drop-off in the third quarter among companies retaining servicing as margins fell. “It could be a cash issue or a liquidity issue, although retained servicing is a nice natural hedge to have,” she said.

Despite overall drops in servicing profits, through the first half of 2017 mortgage servicers collectively saw an uptick in profitability per loan, resulting from higher volumes and loan balances. Walsh said mortgage servicers are “closer” to finding greater efficiencies in managing servicing operating costs, which drive up per-loan profits.