Rates, FHA delinquencies and purchase loans are rising
The Mortgage Bankers Association (MBA) projects that conventional conforming rates for 30-year, fixed-rate
mortgages will reach 4. 8 percent by the end of 2018 and 5. 3 percent by the end of 2019. Given rising wages, inflation and the boost to growth, the MBA has moved to predicting four Federal Reserve rate hikes in 2018.
Home-purchase loan volume is expected to increase to $1.18 trillion, from $1.11 trillion. Note that housing supply continues to limit growth, even as housing demand remains strong and demographic factors are favorable.
Overall, mortgage originations are expected to decrease in 2018 relative to 2017, led by a continuing slowdown in
refinance originations, which are forecast to drop to $426 billion in 2018, from $600 billion in 2017.
Although the increase in mortgage rates
erodes affordability, the biggest challenge we face today is the lack of inventory in the market, which is at or near record
lows. We expect about 1.5 million households to form per year over the next decade, but we’re only building about 1.2
million units annually. Both rental vacancy rates and homes available for sale are
quite tight. Both rent and home prices are
increasing faster than income.
We’re forecasting that housing starts will
grow to 1.3 million in 2018, from 1.2 million in 2017, which closes the gap a bit.
Almost all of that growth will be from
single-family home construction, as
multifamily construction has plateaued.
We expect modest growth in home sales
this year — 5. 7 million existing-home
sales, up from 5. 5 million in 2017; and
640,000 new homes, up from 620,000
We are already seeing evidence that the pace of new-home construction is picking up. MBA’s Builder
Application Survey tracks application volume from mortgage subsidiaries of homebuilders across the country.
Mortgage applications for new homes surged in January and were up 18 percent on a year-over-year basis.
Based on applications, we estimate that new-home sales were running at a pace of 700,000 on a seasonally
adjusted annual basis — the highest such estimate in our survey, which began in 2013.
Overall, MBA survey data indicates that mortgage delinquencies increased across all loan types — Federal Housing Administration (FHA), Veterans Affairs (VA) and conventional — on a seasonally-adjusted basis.
The rise in delinquencies from the third to fourth quarter of 2017 is primarily tied to delinquencies that are
90 days or more past due across all loan types, and particularly FHA loans.
Despite the hurricanes that battered Texas, Florida and Puerto Rico last year, we continue to see overall mortgage
delinquency rates at levels lower than we saw at the end of 2016 among most states. The FHA overall delinquency
rate in fourth-quarter 2017, however, was higher compared to fourth-quarter 2016 in all but three states.
In the fourth quarter of 2017, there was little movement in foreclosure starts or foreclosure inventory. Foreclosure starts, at 0.25 percent, were unchanged from the previous quarter. Foreclosure inventory was down
4 basis points from the previous quarter. Storm-related foreclosure moratoria continue to play a large factor in
keeping foreclosure starts at bay. As forbearance periods expire, an increase in the foreclosure-inventory rate
It will likely take several more quarters for the housing-market effects of last year’s hurricanes to dissipate, especially given extended forbearance periods. Regardless of the hurricanes, an increase in mortgage delinquencies
— particularly FHA delinquencies — from historic lows is not surprising, given the seasoning of the loan portfolio, expected higher interest rates, declining average credit scores on new FHA endorsements since 2014, and
rising debt-to-income ratios. Mitigating factors include low unemployment and increasing home equity levels that
provide homeowners with more options to cure a potential default. 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 *Index equal to 100 for week of March 16, 1990
Week of the year
2014 2015 2016 2017 2018
Purchase-Mortgage Applications Index*