In contrast to the declining refinance market, we expect a 16 percent increase in purchase originations in 2013 over 2012, with every quarter in 2013 exceeding the same quarter of 2012. The increase in purchase originations will be driven by continued modest growth in the economy, an increase in owner-occupied sales financed with mortgages as opposed to cash purchases by investors, an eight percent increase in new home sales and a small increase in home prices. This assumes that changes in the regulatory environment during 2013 are not unduly disruptive in terms of their constraints on available credit, and FHA and/or Fannie Mae/Freddie Mac do not notably tighten their credit policies. FHA and other government programs accounted for 43 percent of purchase originations in 2011 and have been averaging 38 percent of purchase applications in 2012.
Mortgage rates are likely to stay below 4 percent through the middle of 2013, principally due to the announced ongoing purchases of mortgage-backed securities by the Federal Reserve under its QE3 program. The Fed has committed to buying $40 billion of agency MBS per month until the labor market shows significant signs of improvement. Based on MBA’s originations estimate, the Fed will be buying 36 percent of all mortgages originated in 2013, and a much higher percentage of those swapped into agency MBS. Given our expectation that originations will be front-loaded in the first half of 2013, the Fed’s purchases during the second half of 2013 could approach 50 percent of all mortgages originated in the last six months of the year, obviously with the effect of holding down rates, although there is a possibility that the Fed could shift into Treasury securities before the end of 2013. Mortgage rates will continue to increase gradually as the economy improves and finish around 4.4 percent in the fourth quarter of 2013. Rates will again increase slightly to average 4.5 percent in 2014.
Below are the key points of the latest MBA forecast:
- · Real GDP growth will be 2.0 percent in 2013, compared to 1.6 percent growth in 2012. We expect a relatively lukewarm end to 2012 and a slow start to the year as the US economy awaits the resolution of the US fiscal cliff and shakes off any adverse impacts from tax increases that could take place. Residential fixed investment and consumer spending should help boost growth as the economy regains footing. We will see a return to trend growth in the second half of the year and that should continue into 2014.
- · The unemployment rate will remain around the 8 percent mark until the middle of 2013, before falling to 7.8 percent by the end of 2013, and continuing to decrease to 7.4 percent at the end of 2014, as we see above trend growth in the broader economy.
- · Downside risks remain and impact the current outlook. The fiscal cliff weighs on short to medium term growth, with a much larger downside if the US were to go “off the cliff” with all the tax increases hitting households and businesses at once. Unpredictable international factors can alter the outlook significantly.
- · Fixed mortgage rates will climb slowly towards the end of 2012, finishing around 3.8 percent for the year, and continue that trend into 2013 and 2014. We expect rates to edge up to 4.1 percent for 2013 and 4.5 percent in 2014.
- · Housing starts have already started to pick up in 2012 and will continue to grow, driven by a 27 percent increase in multifamily starts in 2013, while single family starts will increase by 13 percent. Total existing home sales will increase almost 4 percent in 2013 and 5 percent in 2014, while new homes sales increase 10 percent in 2013 and 14 percent in 2014.
- · Purchase originations in 2012 will be unchanged from 2011 at around $500 billion and increase by 16 percent to $585 billion in 2013. The level of 2011 purchase originations was revised upwards by around $100 billion with our benchmarking to the 2011 HMDA data. As a result, we raised our 2012 estimate by the same degree, but anticipate that the change in purchase originations from 2011 to 2012 is still minimal. As the economy and housing market continue to improve in 2014, purchase originations will increase by 18 percent to $690 billion.
- · Refinance originations in 2012 will be 28 percent higher than in 2011, totaling $1.2 trillion for the year. This estimate was also upwardly revised from our previous estimate of $1 trillion after benchmarking with the 2011 HMDA data. We expect refinance originations to decrease to $760 billion in 2013 and $360 billion in 2014 as rates increase and fewer borrowers find it beneficial to refinance.
© 2012 Mortgage Bankers Association
INFORMATION PROVIDED BY JOHN ISGRIG OF AMERICAN SECURITY MORTGAGE 828-216-0409