Purchase volume to hit record highs over the next 3 years: MBA
The Mortgage Bankers Association remained more conservative in its origination outlook for 2020 than some of the other forecasters, although the nearly $3.2 trillion in volume it expects would be the second highest origination total the industry has ever had.
It is predicting a record amount of purchase originations in each of the following three years, but the MBA is also expecting average rates for the 30-year fixed to rise to 3.9% by 2023. That will cut into refinance activity, said Mike Fratantoni, its chief economist said during the group's annual convention.
Fratantoni is now expecting $3.18 trillion in total originations this year, a slight increase from August's $3.14 trillion forecast. The industry's best year ever was 2003, with $3.8 trillion in volume, according to the MBA's data.
Total originations will fall to $2.5 trillion in 2021, $2.15 trillion in 2022 and $2.13 trillion in its newly released 2023 outlook. Refis will slip from $1.76 trillion this year to $946 billion, $573 billion and $520 billion over that same timeframe.
But purchase volume will steadily rise from $1.4 trillion this year, to $1.54 trillion in 2021, $1.57 trillion the following year and $1.6 trillion the year after that.
The current strong purchase volume is not just from the pent-up demand sidelined during what would have been the normal spring home-buying season. It's also "new demand as households are looking for potentially larger homes as more people work from home and have distance-learning going on the household," said Joel Kan, associate vice president of economic and industry forecasting.
"Moving from a period where rates are at a record low to a period where rates are somewhat higher, we think that's going to result in a significant 40%-plus drop in refis in 2021," Fratantoni said. "Looking back on this years from now, you will remember 2020 as an absolute banner year for this industry."
Earlier this month, Fannie Mae predicted the industry's first-ever $4 trillion year in 2020, while Freddie Mac said it was expecting $3.6 trillion. For 2021, the only other year the GSEs have forecast for, they are expecting $2.6 trillion and $2.7 trillion, respectively.
The GSEs' economists are predicting rates will remain flat in 2021, unlike Fratantoni.
"The most important factor you need to focus on with respect to rates is what's happening with the federal budget deficit," Fratantoni said. Going into the year, the expectations were for a $1 trillion, but because of the pandemic and the relief efforts there was a $3.1 trillion deficit in federal fiscal year 2020. For the current fiscal year, it could be $2.5 trillion or more.
The Treasury had to auction $4.5 trillion of debt this year, "and it's not going to slow down" going forward. "And what's different this time is it's not just the U.S," Fratantoni said. Every country in the world is facing the same situation, and as a result U.S. Treasury securities are going to be competing with a lot of investors around the world for funds. That will put some upward pressure on yields.
While short-term rates will remain extremely low, the longer-term rates to which mortgages are benchmarked are going to edge upward over the next couple of years as the economy improves, he said.
Fratantoni added that the forecast was based on the presumption that there will be a vaccine for COVID-19 and that the pandemic will be under control next year. It is also takes into account the likelihood of another fiscal stimulus bill passing Congress.
But a more pessimistic scenario around the coronavirus would lead to lower rates next year. And a post-election shift in the control of the White House and Senate could lead to much more spending from the federal government that "really exacerbates some of those deficit issues," leading to higher-than-expected rates, which in turn could end the current refi wave "even sooner and the drop could be sharper," Fratantoni said.