Are we poised for a recovery? MBA thinks so, despite economic headwinds
The Mortgage Bankers Association (MBA) unveiled a mixed bag of predictions for the 2024 housing market at its Annual Convention & Expo.
While mortgage origination volume is anticipated to rise to $1.95 trillion, up from $1.64 trillion in 2023, the US economy could face a mild recession in the first half of 2024.
A looming recession in early 2024, tighter credit, and dwindling pandemic-era savings could spell trouble and trigger an economic downturn, according to MBA chief economist Mike Fratantoni. The job market is expected to decelerate, with the unemployment rate predicted to rise to 5% by the end of 2024. Inflation is also expected to gradually decline towards the Fed’s 2% target by mid-2025.
“Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023,” Fratantoni said in MBA’s forecast report. “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected. Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024.”
Despite these challenges, purchase originations are projected to grow by 11% to $1.47 trillion in 2024. This growth is supported by the Federal Reserve’s signals that the cycle of rate hikes might be nearing its conclusion. Lower rates are expected to invigorate homebuyer demand and increase the inventory of existing homes on the market.
MBA’s baseline forecast sees mortgage rates ending 2024 at 6.1%, dropping to 5.5% at the end of 2025. This decline is expected as the economy slows, inflation lowers, and the spread between mortgage and Treasury rates narrows.
Joel Kan, MBA’s deputy chief economist, highlighted the silver lining for new home sales. He said first-time homebuyers, especially those stepping into their prime homeownership years, are ready to drive the market, even as challenges loom.
Read more: Rising new home prices push annual growth rate higher
“New home sales continue to be stronger than existing home sales, as buyers increasingly turn to newly constructed homes given the dearth of existing home listings and how competitive the bidding process still is,” Kan continued. “Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months.”
On the production side, Marina Walsh, vice president of industry analysis at MBA, noted that production losses from 2023 are expected to linger into the next spring. Excess capacity remains challenging for mortgage lenders, leading to low productivity levels and high per-loan expenses.
“Lenders have reduced their headcounts and gross expenses, but the record-low volume is a primary driver of these escalating per-loan costs,” Walsh said, noting that MBA expects a 30% reduction in mortgage jobs due to decreased production volume. MBA now estimates that the industry is roughly two-thirds of the way there.
Diving into the servicing side, Walsh said, “Low delinquencies and prepayments mean that servicing net operating income has risen in 2023, enabling many lenders to stay profitable overall. In 2024, delinquency rates are likely to increase as unemployment increases and borrowers are stressed by increasing property taxes and insurance and the resumption of student debt payments.”
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