MBA shares economic forecast at servicing conference in Dallas

February 27, 2017 | By

Modest economic growth, a tight labor market, and rising wages bode well for the mortgage market and housing demand this year. That’s according to the housing market forecast the Mortgage Bankers Association (MBA) provided on Feb. 16 at its National Mortgage Servicing Conference & Expo in Dallas, TX.

Read more: What 7 housing market experts say we can expect in 2017

MBA is forecasting rising purchase originations in 2017. But they expect a sharp decline in refinances. And that will produce a drag on the overall mortgage volume. The association forecasts total volume of $1.57 trillion in 2017. Estimated volume for 2016 is $1.89 trillion.

A 30-year, fixed-rate mortgage will average 4.7 percent by the fourth quarter of this year, MBA says. The mortgage rate will head north of 5.0 percent by the end of 2018, and end 2019 at 5.5 percent.

The recent uptick in interest rates has modestly increased activity in adjustable-rate mortgages. They reached 7.5 percent of the market in early February. That’s the highest it’s been in quite some time as consumers seek more affordability, says Lynn Fisher. The MBA Vice President of Research and Economics expects mortgage rates to climb this year. But she still expects them to remain relatively low.

Home Prices to Rise

The MBA forecasts a 4.8 percent rise in house prices in 2017. But they expect those prices to begin to level off next year as new supply comes on board.

MBA reports extremely tight housing inventories in many metropolitan areas. And that has boosted prices in some cities by double digits and to new records. But it hasn’t, unfortunately, brought much new supply. Fisher expects to see a modest increase in single-family construction this year. She notes that peak demand for single-family homes from the Millennial generation is still a few years away.

She expects multifamily construction to remain strong, mirroring the popularity of apartments among Millennials. They are staying in school longer, getting married later, and living in rental properties into their late 20s and early 30s. The biggest band of the Millennial generation is still in its 20s and mostly renting, Fisher says.

Millennials primed for first-time home buying won’t reach a peak until 2024-2025, she predicts. “And I would argue it will be another five years after that before we see peak demand for new houses.”

Credit availability was mostly flat in 2016. But prospective first-time buyers can look at the return of Fannie Mae and Freddie Mac to 97 percent loan-to-value financing as a positive sign.

Read more: Making an affordable mortgage product easier to use, available to more homebuyer

The Home Affordable Modification Program (HAMP) has been popular with investors and aggregators, she adds. But originators need to promote the program to their borrowers.

New Administration and Interest Rates

In its forecast for the mortgage market, the MBA has yet to consider anything related to tax reform or regulatory changes under the new Trump administration. There just isn’t enough detail yet on what may occur or when, Fisher says. But the association will be watching and adjusting the forecast as legislative changes warrant.

Read more: Will U.S. policy keep the nation’s economic expansion alive in 2017?

It also will be watching what happens with the federal funds interest rate. In January, the year-over-year, non-seasonally adjusted consumer price index came in at 2.5 percent. This was the first time since 2014 that the index increased more than core inflation, which excludes food and oil prices, Fisher says. Rising gas prices contributed to the increase.

The MBA predicts the Federal Reserve will raise the federal funds interest rate in June. But rising inflation could increase the probability of an interest rate rise in March. The Fed has hiked interest rates only twice since the Great Recession ended in 2009.

Inflation may actually be picking up. In that case, “you don’t want to move too late because the economy could overheat,” she says. “The case for March is improving. We are still calling June. But we’ll have to see how the other inflation measures pan out over the next few weeks.”

 

 

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