The Mortgage Bankers Association (MBA) might
not have been smiling as it prepared the economic forecast for 2014 it handed
out today. The association's economists say they expect the volume of mortgage
originations to drop by 32 percent next year as rising numbers of purchase
applications fail to compensate for the fall-off in refinancing.
MBA expects to see $1.2 trillion in
originations in 2014 compared to a projected $1.7 trillion in 2013. Purchase originations are projected to rise
by 9 percent but refinancing originations will plummet by 57 percent.
The $1.7 trillion projected for this year is a revision from $1.6 trillion
forecast earlier based on new Home Mortgage Disclosure Act (HMDA) data. Jay Brinkmann, MBA's Chief Economist and
Senior Vice President for Research and Education said the
data showed a higher share of originations going to independent mortgage
lenders, particularly purchase mortgages. In 2012, 40 percent of the
purchase volume was originated by independent mortgage companies, up from 36
percent in 2011.
The dollar volume of purchase
originations in 2014 will increase to $723 billion from $661 billion while
refinancing volume will drop from $1.08 trillion to $463 billion. In 2015 MBA expects purchase originations of
$796 billion and a further decline in refinancing to $433 billion.
Brinkmann said MBA expects home purchase
originations will increase in 2014 due largely to gains in home sales and home
prices but also expects to see a decline in the share of sales paid for with
cash. He anticipates seeing higher
average LTVs on purchase mortgages, due to the rise in home prices.
"We expect mortgage rates will increase above 5
percent in 2014 and then increase further to 5.3 percent by the end of 2015,"
he continued. "As a result, mortgage
refinancing will continue to drop, and borrowers seeking to tap the equity in
their homes will be more likely to rely on home equity seconds rather than
cash-out refinances. We will potentially see a small increase in
refinances toward the end of 2015 as the Home Affordable Refinance Program 2.0
(HARP) expires but HARP activity during 2014 will still be low. While on
paper the number of HARP-eligible borrowers appears large, the reality is these
borrowers have been unresponsive to numerous attempts to encourage them to
participate in the program and are less likely to do so now that rates have
"Our forecast for the increase in the purchase
market is based on our expectations for ongoing improvements in the broader
economy and the jobs market. We are projecting overall economic growth to be
2.4 percent in 2014 and 2.7 in 2015, supported mainly by increases in consumer
spending and residential fixed investment. GDP growth will remain
relatively weak through the end of 2013 and early 2014, at around 2 percent,
due to a variety of uncertainties, particularly over US spending and tax
policies linked to the debt limit debate. Our expectation is that the
economy will grow somewhat faster in the second half of 2014 as some of these
issues are resolved.
"The 10-Year Treasury rate is expected to stay
below 3 percent for the remainder of 2013 and into early 2014, but then increase
more rapidly in the second half of 2014 as the Fed tapers its asset purchases
and subsequently phases out the third round of quantitative easing (QE3).
We now expect the Fed to begin tapering its asset purchases in early
2014, and ending QE3 in September 2014. The Fed funds rate will be kept near
zero until mid-2015, when we expect to see the first fed funds rate increase.
"Unemployment is expected to continue on a
downward path due to falling labor force participation and job growth in the
range of 150,000 to 170,000 jobs per month. We expect the unemployment
rate will decrease to 6.9 percent in 2014 and 6.4 in 2015."
MBA's origination projections are a bit more pessimistic
than those provided earlier this month by Freddie Mac and Fannie Mae. Housing market forecasts from the two GSEs
were very similar in most respects, projecting total originations for 2013 at
about $1.8 trillion, slightly more than MBA. For 2014, Fannie Mae and Freddie
Mac estimated originations of $1.36 and $1.40 trillion respectively.