Eco­nomic growth leads to more pur­chase orig­i­na­tions in 2018: MBA

National Mortgage News - - Contents - By brad finkel­stein

con­tin­ued eco­nomic growth, a strong jobs mar­ket and higher wages should pro­vide a lift to pur­chase orig­i­na­tion vol­ume next year, though such gains will likely be off­set by a steep drop in re­fi­nance ac­tiv­ity.

Pur­chase orig­i­na­tion vol­ume should rise by 7.3% in 2018, ac­cord­ing to the Mort­gage Bankers As­so­ci­a­tion. Re­fi­nance vol­ume, how­ever, is ex­pected to drop 30%, caus­ing a de­cline in to­tal orig­i­na­tions.

A lack of hous­ing in­ven­tory is driv­ing con­tin­ued price in­creases, mak­ing it “dif­fi­cult for a lot of peo­ple to tran­scend” and en­ter the mar­ket, Lynn Fisher, the MBA’s vice pres­i­dent of re­search and eco­nom­ics, said at a press brief­ing’s dur­ing the MBA’s An­nual Con­ven­tion & Expo in Den­ver last month.

Home prices are grow­ing faster than wages, added Mike Fratan­toni, the as­so­ci­a­tion’s chief econ­o­mist.

There are no signs that the in­ven­tory short­age will be ad­dressed any­time soon, Fisher said, not­ing that home­own­er­ship fell af­ter the hous­ing bust when many homes be­came rental prop­er­ties.

“It is go­ing to take some work for the price sig­nals to be re­ceived for that stock to be sold back to home­own­ers,” Fisher said.

Not all of the sin­gle-fam­ily rentals will re­vert to home­own­er­ship. Most sin­gle-fam­ily rentals are owned by mom-and-pop in­vestors who are “get- ting good in­come from rent­ing now,” so there is no in­cen­tive to bring those prop­er­ties to mar­ket, Fisher said.

Mort­gage in­ter­est rates will con­tinue to rise in com­ing years, but “not ter­ri­bly fast and not ter­ri­bly much,” Fratan­toni said, which should not af­fect the pur­chase mar­ket.

The pro­jec­tion for over­all eco­nomic growth is 2% next year, slow­ing slightly to 1.9% in 2019 and to 1.8% in 2020. The Fed­eral Open Mar­ket Com­mit­tee should raise short-term rates in De­cem­ber with three hikes ex­pected next year and two more in 2019.

The MBA pre­dicts that to­tal 2017 vol­ume will fall by 18% from a year ear­lier, to $1.69 tril­lion. The project- ed vol­ume for 2018 is ex­pected to de­cline to $1.6 tril­lion be­fore ris­ing to $1.64 tril­lion in 2019 and $1.71 tril­lion in 2020. Data for 2016 was re­vised af­ter the re­lease of the Home Mort­gage Dis­clo­sure Act data.

Pur­chase vol­ume over the next few years will be­come a larger per­cent­age of orig­i­na­tions, to­tal­ing $1.09 tril­lion this year and $1.17 tril­lion in 2018. The num­bers should in­crease to $1.25 tril­lion in 2019 and $1.3 tril­lion in 2020.

The lack of sup­ply of new homes for sale is cre­at­ing com­pe­ti­tion for orig­i­na­tions and mar­gin com­pres­sion for mort­gage bankers, mostly on the ex­pense side, said Ma­rina Walsh, the MBA’s vice pres­i­dent of in­dus­try anal­y­sis.

Rev­enues “help up pretty well” in the first half of 2017, Walsh said. Even with the drop in vol­ume from last year, mort­gage firms were un­able to ad­just their cost struc­ture.

The ef­fect of the hur­ri­canes in Texas and Florida, and the Cal­i­for­nia wild­fires should in­crease the cost of build­ing new homes, while also slow­ing the time­line down a bit, Fisher said. “We have a pretty mod­est hous­ing starts path for the next cou­ple of years de­spite the pretty fast in­crease in house prices.”

The hur­ri­canes did not have a last­ing ef­fect on mort­gage ac­tiv­ity, Fratan­toni said. When the storms hit there was a big drop in ap­pli­ca­tion ac­tiv­ity in Texas and Florida, but it bounced back to nor­mal within a cou­ple of weeks.

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