The Mortgage Bankers Association remained more conservative than some of the other forecasters in its 2020 formation outlook, although the expected volume of nearly $ 3.2 trillion would be the second highest formation the industry has ever had.
A record number of origins of purchases is projected in each of the following three years, but the MBA also expects the average interest rates for the 30-year fixed to rise to 3.9% by 2023. This will limit refinancing activities, said Mike Fratantoni. said the chief economist during the group's annual meeting.
Fratantoni now expects total origins to be $ 3.18 trillion this year, a slight increase from August's forecast of $ 3.14 trillion. The best year in the industry was 2003 with a volume of 3.8 trillion US dollars, according to the MBA.
Total origins will drop to $ 2.5 trillion in 2021, $ 2.15 trillion in 2022, and $ 2.13 trillion in the newly published outlook for 2023. Refis will drop from $ 1.76 trillion this year to $ 946 billion, $ 573 billion and $ 520 billion, respectively, over the same period.
However, the volume of purchases will steadily increase 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.
The current strong volume of purchases is not only due to the pent-up demand for home purchases during the normal spring season. It's also "new demand as households look for potentially larger homes as more people work from home and have distance learning around the house," said Joel Kan, vice president of economic and industrial forecasting.
Millennials and first-time buyers will drive this growth. Next year, existing home sales will increase 10% and new home sales will increase 12%, MBA predicted.
"If we move from a period of record lows to a period of slightly higher interest rates, we expect this to result in a significant drop in refis of more than 40% in 2021," Fratantoni said. "If you look back on those years, you will remember 2020 as an absolute banner year for this industry."
Earlier this month, Fannie Mae forecast the industry's first $ 4 trillion year 2020, while Freddie Mac was forecasting $ 3.6 trillion. For 2021, the only other year the GSEs have forecast, they expect $ 2.6 trillion and $ 2.7 trillion, respectively.
GSE economists predict that unlike Fratantoni, rates will remain unchanged in 2021.
"The most important factor to focus on when it comes to interest rates is what happens to the federal budget deficit," Fratantoni said. It was expected to start the year at $ 1 trillion, but due to the pandemic and relief efforts, there was a deficit of $ 3.1 trillion in the 2020 federal fiscal year. For the current fiscal year, it could be $ 2.5 trillion or more.
The Treasury Department had to auction $ 4.5 trillion in debt this year, "and it's not going to slow down in the future." "And what's different this time is that it's not just the US," said Fratantoni. Every country in the world faces the same situation and, as a result, US treasury stocks will compete for funds with many investors around the world. That will put some pressure on returns.
While short-term interest rates will remain extremely low, the longer-term rates that mortgages are measured against will rise over the next few years as the economy improves, he said.
Fratantoni added that the forecast was based on the assumption that there would be a vaccine against COVID-19 and that the pandemic would be under control next year. It also takes into account the likelihood that another fiscal incentive bill will be passed by Congress.
However, a more pessimistic scenario surrounding the coronavirus would result in lower rates over the next year. And post-election post-election post-election control of the White House and Senate could lead to much more federal government spending that "really exacerbates some of these deficit problems" and leads to above-expected rates that could end the current refi wave " even earlier and the decline could be sharper, "said Fratantoni.