MBA predicts 7% jump in home purchase applications for 2018
DENVER — At its annual conference this week, the Mortgage Bankers Association announced that it expects purchase mortgage originations to jump to $1.2 trillion, a 7.3 percent increase from this year.
Overall mortgage originations will likely slide in 2018, due in large part to a 28.3-percent drop in refinancing. MBA forecasts total originations at $1.60 trillion in 2018, down considerably from $1.69 trillion in 2017.
But a rebound lies ahead in 2019, with total originations surging to $1.64 trillion over 2018’s projection. Purchase originations account for the lion’s share of that growth at $1.24 trillion. Refinance originations are expected to fall again to $395 billion.
In other words, housing’s future looks bright, said Michael Fratantoni, chief economist and senior vice president for research and industry technology with the MBA.
“The housing market has been hamstrung by insufficient supply, with inventories of homes remarkably low given the home price growth we have experienced,” Fratantoni says.
“The job market remains strong, demographic trends are quite favorable, mortgage credit is becoming more available to qualified borrowers, and home prices should continue to rise. All the pieces are in place for stronger growth in 2018 and beyond.“
But what’s the drag on 2017 housing?
The picture isn’t as rosy for the rest of this year. MBA expects purchase originations to keep tanking now that we’re in the slower fall and winter months.
The proverbial ball has been in home sellers’ courts in 2017. They’ve enjoyed double-digit price appreciation in some hot markets.
“The housing market has been hamstrung by insufficient supply, with inventories of homes remarkably low given the home price growth we have experienced,” —Michael Fratantoni, MBA chief economist
However, a lot of the inventory crunch comes from homeowners-turned-landlords who are renting out their starter homes.
“Landlords are getting a good income from rents right now so they have low motivation to sell,” said Lynn Fisher, MBA’s vice president of research and economics, during a special panel on Monday with reporters at the MBA conference.
The housing market is in desperate need of lower-priced homes on the market to help alleviate inventory shortages, Fisher said. Typically, those types of homes are older and need substantial work.
New-home sales poised to increase
Industry analysts expect inventory issues to continue into 2018, keep existing-home sales flat.
New construction, however, could be the antidote to the shortage problem.
Freddie Mac recently released its 2018 outlook, and called for an increase in building and new-home sales. Overall, Freddie Mac expects total home sales to increase by about 2 percent year-over-year in 2018.
Eyes on the future
Looking more broadly at the U.S. economy’s prospects, Fratantoni says he expects measured growth but not at a fast clip by any means.
“Our projection for overall economic growth is 2 percent for 2018, slowing slightly to 1.9 percent in 2019 and 1.8 percent in 2020,” he says. “Although inflation remains low, a tight job market is likely to increase inflationary pressures in the near term.”
The Fed is expected to raise rates in December and will likely do so a few more times in 2018 and 2019. As the Fed reduces its holdings of Treasury securities and mortgage-backed securities, home buyers will likely see higher mortgage rates in the near future, Fratantoni says.
No need to panic, though. The MBA predicts 30-year mortgage rates will stay below 5 percent, which helps buyers (slightly) offset the increase in home prices.
Income growth, which has been tepid in recent years, is the key to help home buyers get their foot in the door to homeownership.
The problem: wages simply aren’t keeping up with housing costs, creating an affordability gap for many consumers.
MBA expects job gains to slow to 125,000 per month in 2018. That’s down from about 150,000 jobs added per month in 2017. However, unemployment will continue to drop to about 4 percent by the end of next year, the MBA reports.
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