Bright prospects for home-purchase originations
The Mortgage Bankers Association (MBA) projects that home-purchase originations will increase further in
2017, reaching $1.1 trillion, up from an estimated $903 billion in 2016. Strong household formation coupled
with further job growth, rising wages and continuing home-price appreciation will drive strong growth in
purchase originations in the coming years.
Overall economic growth will not be robust, but it will be strong enough to lead to further job and wage
growth in the next three years. Applications to refinance mortgages, which are extremely sensitive to interest
rates, are expected to decline by more than 50 percent, from $990 billion in 2016 to $484 billion in 2017 — and
from 48 percent to 31 percent of the overall market.
Interest rates jumped in the wake of the U.S. presidential election. There are several potential explanations for the
jump in rates. First, markets are anticipating tax and regulatory changes that may help stimulate economic growth
in the near term. These changes also could put upward pressure on inflation. Both factors would lead to higher rates.
Second, global investors may have
initially pulled back from U.S. assets
to some extent. In the tumult immediately following the election, there
were wild swings in certain currencies
relative to the dollar, as investors reassessed which countries represented
the safest havens.
MBA still believes that all signs point
to the Federal Reserve Board of Governors taking action to boost interest
rates further this year, with several
small increases in the federal funds
rate anticipated throughout the year.
On a national basis, total monthly mortgage applications, including home purchase and refinance, fell by 7. 3 percent
this past September, compared to the
prior month, but still ran 24. 7 percent
ahead of the prior year. For the past two
years, year-over-year growth in mortgage applications has been mostly positive.
The average loan size for home-purchase applications rose to $303,000 as of this past September, while the
average loan size for refinance applications dropped to $269,000. As this has been a period of increasing rates,
we have seen refinance-loan amounts continue to trend lower.
Nationally, the mortgage delinquency and foreclosure rates have generally continued to decrease. The delinquency rate for residential properties dropped to just 4. 52 percent of all loans outstanding as of the end of
third-quarter 2016 — the lowest level since second-quarter 2006.
Sustained job growth and low unemployment have helped more borrowers stay current with their mortgage
payments. Some states did see minor increases in mortgage delinquency rates, but they normally rise between
the second and third quarters of the year because of a variety of seasonal factors.
The mortgage delinquency rate has decreased in almost every quarter since the beginning of 2013 and is below its historical average of 5. 36 percent for the period from 1979 to the present. New foreclosure actions were
initiated on 0.3 percent of outstanding loans this past third quarter — the lowest rate since second-quarter
2000 and below the historical average rate of 0.44 percent.
Continuing a downward trend that began in 2012, the foreclosure-inventory rate declined to 1.55 percent
in third-quarter 2016. The percentage of loans in foreclosure continued to run higher in judicial foreclosure
states than in states that utilize a nonjudicial-foreclosure process or use both processes. Regardless, the
foreclosure-inventory rate continues to decline across the board. n
Mike Fratantoni is chief economist
and senior vice president of research
and industry technology at the Mortgage Bankers Association (MBA). He is
responsible for overseeing MBA’s industry surveys, benchmarking studies,
economic and mortgage-origination
forecasts, industry-technology efforts,
and policy-development research for
the single-family and commercial/mul-tifamily markets. Prior to joining MBA,
Fratantoni worked in risk management
and senior economist roles at Washington Mutual and Fannie Mae. Reach the
MBA at (202) 577-2700. Source: Mortgage Bankers Association
Estimated Mortgage Originations