Mortgage Update

Market Update


Mike Fratantoni
Chief Economist, Mortgage Bankers Association


The national economy is growing, and the job market continues to improve, but slower growth abroad and tighter financial conditions convinced Fed policymakers to wait at least one more meeting to increase rates. We expect GDP growth to continue at a similar pace in the second half of 2015 and to be driven by consumer spending. Residential fixed investment is also expected to strengthen as household formation grows. Our forecast for GDP growth is 2.4 percent in 2015 and 2.4 percent in 2016.

The U.S. economy added 173,000 jobs in August and has now averaged 212,000 jobs per month in 2015. The national unemployment remained decreased to 5.1 percent, which was the lowest level since April 2008. Arizona’s unemployment rate was at 6.3 percent in August, while employment increased by 52,300 jobs relative to last year, a 2 percent increase. Relative to a year ago, Arizona’s labor force continues to grow, as does the number of workers currently employed, while the number of unemployed workers has decreased. Unemployment should continue to decrease both nationally and in Arizona over the next year, with the national unemployment rate likely dropping to 4.8 percent.

Home prices have increased faster in Arizona than in the rest of the country recently, with prices up 7 percent on a year/year basis compared to a 5.5 percent rate nationally. With increasing home values and an improving job market, total U.S. home sales (new and existing) in July exceeded 6 million units. We expect that home sales will continue to increase in 2016, with new home sales up about 10 percent, while existing home sales should rise by about 4 percent. The pace of home price growth may slow as inventories grow to more typical levels. Additionally, Arizona’s recovery from the 2009 foreclosure problem has outpaced the nation, with the percent of seriously delinquent loans declining to 1.9 percent from a peak of 13.2 percent in 2009.The current rate is less than half of the national average.

Arizona accounts for about 3 percent of all application volume nationally. Purchase application volume was increasing 36 percent relative to last year in Arizona, with the strongest growth for loans between $150,000 and $417,000 at almost 60 percent relative to the previous year. The investor share of home purchase mortgage activity in July was 5.2% in Arizona compared to 4.6% in the U.S. Applications for 2nd homes accounted for 7.7% of all home purchase mortgage activity in Arizona and 5.0% in the U.S. In Arizona average loan size was $220,922 for home purchase applications and $195,450 for refinances in the month of July. In the U.S., average loan size was $287,474 for home purchase applications and $233,796 for refinance applications.

For 2016, we expect $885 billion in purchase originations nationally, up from $801 billion in 2015. However, rates will likely continue to rise and cause refinances to decline to $379 billion for a total of $1.26 trillion in origination volume in 2016. Given the strong employment and housing market trends in Arizona, purchase market volume should run ahead of the national pace.


Michael Fratantoni is MBA’s Chief Economist and Senior Vice President of Research and Industry Technology. Michael has had nearly twenty years of industry experience including risk management and senior economist positions at Washington Mutual and Fannie Mae.