A solid economy boosts the home-purchase market
The Mortgage Bankers Association (MBA) projects that 2018 will bring $1.2 trillion in purchase mortgage originations, a 7. 3 percent increase from 2017. The biggest reason for the increase is the continually improving economy.
The MBA forecasts that monthly employment growth will average 125,000 jobs per month in 2018 and that
the national unemployment rate will drop below 4 percent by the end of 2018. The job market remains strong,
demographic trends are quite favorable, mortgage credit is becoming more available to qualified borrowers and
home prices should continue to rise. All the pieces are in place for stronger growth in 2018 and beyond.
The housing market, however, has been hamstrung by insufficient supply, with inventories of homes remarkably
low, given the home-price growth we have experienced. As more units come on the market, home-purchase
originations should increase at a
faster clip in 2018, nearly double
the rate that they increased in 2017.
Refinance originations are projected to decrease by 28.3 percent
from 2017 levels, dipping to approximately $430 billion. Refinance
originations are inversely correlated to interest rates, and those are
projected to continue to increase.
The MBA expects the Federal Reserve will raise rates at least three
times in 2018, and twice in 2019.
The Fed has begun reducing its
holdings of Treasury securities
and mortgage-backed securities,
and this will put additional, modest upward pressure on mortgage
rates. The 10-year Treasury rate
is projected to stay just below
3 percent through the end of 2018,
and 30-year mortgage rates are expected to stay below 5 percent. Although inflation remains low today, a tight
job market is likely to increase inflationary pressures in the near term.
In total, mortgage originations are projected to decrease from about $1.7 trillion in 2017 to $1.6 trillion in 2018
and then are expected to increase slightly to $1.64 trillion in 2019, with purchase originations of $1.24 trillion and
refinance originations of $395 billion. The positive economic outlook does not only signal stronger purchase
originations, it also suggests continued strong loan performance ahead.
MBA’s third-quarter 2017 National Delinquency Survey (NDS) includes loan data from this past August and
September, when a string of hurricanes caused significant damage to parts of Texas, Florida and the Gulf Coast, and
Puerto Rico. While forbearance is in place for many borrowers affected by these storms, our survey asks servicers
to report these loans as delinquent if the payment was not made based on the original terms of the mortgage.
With that in mind, the delinquency rate rose by 64 basis points nationwide this past third quarter, compared
to the prior quarter, with the 30-day delinquency rate driving the majority of this increase. Delinquencies
increased across all loan types — Federal Housing Administration (FHA), Veterans Affairs and conventional —
on a seasonally-adjusted basis. FHA delinquencies saw a 146 basis-point increase, to 9. 4 percent.
The storms obviously played a major role in explaining the rise in the overall delinquency rate. Although it
would make sense that FHA borrowers — who are less likely to pay their mortgage through auto-draft — would
see a more significant increase, it is certainly not the only factor. Other factors to consider include seasonality,
rising loan-to-value and debt-to-income ratios for certain product types, normal loan aging, and declining average
credit scores on new FHA endorsements since 2014.
Most of the major variances from the second to third quarter of 2017 are tied to early delinquencies for all loan
types. In the third quarter of 2017, there was little movement in the seriously delinquent rate, which rose just
3 basis points and was down 44 basis points from a year earlier. Foreclosure starts were down one basis point from
the previous quarter. In future surveys, we may see a temporary drop in foreclosure starts in hurricane-impacted
states because of storm-related foreclosure moratoria, as was seen during Hurricane Katrina in 2005. 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/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
Source: Mortgage Bankers Association
Purchase originations Refi originations
*Forecasted figures current as of October 2017