Mortgage Industry Update
November 29, 2016
Mortgage Bankers Association, Economist
The Mortgage Bankers Association projects that home purchase originations will increase further in 2017, building on an estimated 10 percent increase in 2016. Strong household formation coupled with further job growth, rising wages, and continuing home price appreciation will drive strong growth in purchase originations in the coming years. We expect that overall economic growth will be not robust, but strong enough to lead to further job and wage growth over the next three years.
Interest rates jumped in the wake of the election. There are several potential explanations for the jump in rates. First, markets are anticipating tax and regulatory changes that may help stimulate economic growth in the near term. These changes could also put upward pressure on inflation. Both factors would lead to higher rates. Second, global investors may have initially pulled back from U.S. assets to some extent. In the tumult immediately following the election there were wild swings in certain currencies relative to the dollar, as investors reassessed which countries represented the safest havens. MBA will release an updated forecast in mid-November further assessing the impact of the incoming presidential administration on its rate forecast and other macroeconomic indicators.
The average total loan size in Arizona, accounting for both home purchase and refinance loan applications, was $222,628 in September 2016, the last month for which data is available from the Mortgage Bankers Association’s Monthly Profile of State and National Mortgage Activity. Purchase applications were down 2.8 percent. Refinance applications were down 10.7 percent, and took up 62.9 percent of the overall market. On a year over year basis however, Arizona saw growth in both purchase and refinance loan volume at 10.5 percent and 39.4 percent, respectively. The adjustable rate mortgage (ARM) share of the market was 2.8%, down from 5.1% last year.
On a national basis, total monthly mortgage applications, including both home purchase and refinance, fell by 7.3 percent in the month of September 2016 compared to the month of August 2016, but still ran 24.7 percent ahead of last year. For the past 2 years, year over year growth in mortgage applications has been mostly positive. The average loan size for home purchase applications rose to $303,000, while the average loan size for refinance applications dropped to $269,000. Refinance loan balances in recent months have been extremely sensitive to changes in mortgages rates, thus in this period of increasing rates, we have seen refinance loan amounts continue to trend lower.
The delinquency rate for mortgage loans on residential properties in Arizona was 3.35 percent at the end of the third quarter of 2016, an increase of 5 basis points from the second quarter of 2016, according to MBA’s National Delinquency Survey. The delinquency rate excludes loans in the process of foreclosure. The percentage of loans in Arizona on which foreclosure was started during the quarter remained the same at 0.21 percent, while the percentage of loans in the foreclosure process at the end of the quarter fell 4 basis points to 0.54 percent, as the state’s mortgages continue to perform extremely well in the current market. It is worth noting that Arizona was hit particularly hard during the run up in foreclosure activity from 2007-2009, and at the worst of it, Arizona’s foreclosure starts rate was over 2.5 percent and the percent of loans in foreclosure topped 6 percent.
Mortgage delinquency rates normally rise between the second and third quarters of the year due to a variety of seasonal factors. Among the 50 states and the District of Columbia, Arizona ranked 40 in delinquencies and 40 in foreclosures started. Mississippi ranked first in delinquencies with a rate of 8.68 percent and New Jersey ranked first in foreclosure starts with a rate of 0.65 percent.
Nationally, mortgage delinquency and foreclosure rates generally continued to decrease in the third quarter of 2016, dropping to just 4.52 percent, as sustained job growth and low unemployment helped more borrowers stay current with their mortgage payments. The percentage of new foreclosures initiated in the third quarter was 0.30, making it the lowest rate since 2000 and below the historical average rate of 0.44 percent. The delinquency rate has decreased in almost every quarter since the beginning of 2013 and is below its historical average of 5.36 percent for the period from 1979 to the present.
Continuing a downward trend that began in 2012, the foreclosure inventory rate declined to 1.55 percent in the third quarter of 2016. The percentage of loans in foreclosure continued to run higher in judicial foreclosure states than in states that utilize a non-judicial foreclosure process and states that use both processes. Regardless, the foreclosure inventory rate continues to decline across the board.