The home-mortgage market
is primed for purchase growth
As of the start of the this past second quarter, the Mortgage Bankers Association’s assessment of where the market
will head in 2017 was little changed from the outlook at the beginning of the year, with a few key differences.
Through the first quarter of the year, we saw a job market that was much stronger than we initially anticipated.
Employment growth started 2017 on strong footing, with the economy adding 216,000 jobs in January 2017 and
232,000 jobs in February. Average hourly wage growth increased 2.8 percent over the previous year and has
maintained a generally increasing trend since late 2015. The unemployment rate was hovering around 4. 5 percent.
All of that suggests a much stronger job market, and that is really the
most important and fundamental support for a strong housing
market. That has led us to be even
more confident that this economy
can support our projection of a
9 percent increase in the size of
the purchase-mortgage market in
2017 over 2016, to a level of almost
$1.1 trillion for purchase. One factor
that may be tempering growth is
the relative lack of available housing.
For the first time in 2017, MBA’s
Builder Applications Survey this
past April showed that applications
for new homes were lower than the
same month one year ago. A relatively strong March performance
may have pulled forward some
April applications. On net, however, year-to-date applications for new homes are 3 percent higher than during the
same period in 2016. Despite steady demand for housing, homebuilders continue to face rising costs for labor and
materials, which will continue to moderate the pace of building.
We still anticipate that mortgage rates will be about 25 to 50 basis points higher by the end of 2017 over rates
as of this past May, which were hovering around 4. 25 percent. We will probably see rates averaging around
4. 6 percent by fourth-quarter 2017.
When we look further ahead, to the end of 2018, the dominant trend we still see is the ongoing shift from a
refinance-dominated market to a purchase-oriented market. Through this past April, refinances still accounted
for about 40 percent of origination volume, but by the end of 2018 that figure will be down to around 28 percent.
We expect refinance volume to fall further as rates increase, while purchases keep growing with the job market.
As far as delinquencies and foreclosures, the first quarter of 2017 brought us back to a more comforting trend,
as once again we saw overall delinquency rates fall in all 50 states plus the District of Columbia. While conventional
rates held steady at their already near-historic lows, Federal Housing Administration (FHA) loan-delinquency rates
fell off their fourth-quarter 2016 bump to lows not seen since 1997.
Foreclosure inventories declined to a decades-low mark this past first quarter, with only 1.39 percent of all loans
serviced in the quarter being in the process of foreclosure. Judicial states continue to see three times the percentage of loans in foreclosure as compared to nonjudicial states. Even in that segment, however, we still saw lows this
past first-quarter that have not been seen since fourth-quarter 2007.
Although we saw an increase in foreclosure starts this past first quarter for the first time since the fourth quarter of
2014, this increase was accompanied by a sizable drop in loans that were 90 days or more past due. This indicates
the increase is driven by lingering delinquencies — hung up by resolution attempts and in judicial processes —
that were finally able to move forward in the foreclosure pipeline this past first quarter. n
DataDecoded
Mike Fratantoni
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/multifamily 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
Refinance Share of Home-Mortgage Origination Market
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