Mortgage Industry Update
February 22, 2017
Economist, Mortgage Bankers Association
In the January 2017 forecast from the Mortgage Bankers Association (MBA), we estimate that total mortgage originations will decrease to $1.56 trillion in 2017 from $1.89 trillion in 2016. This total will increase slightly in 2018 as a growing purchase market is offset by more declines in refinance activity as rates rise. We expect the 30 year mortgage rate will hit 4.7 percent by the end of 2017, reach 5 percent by the second half of 2018 and increase further to 5.5 percent by the end of 2019. With a large segment of borrowers having taken advantage of sub-4 percent rates in recent years, refinance volume will decrease even though rates in the 5 percent range are still very low by historical standards.
In its first meeting of 2017, the Federal Reserve voted unanimously to maintain their current monetary policy stance, keeping short-term rates unchanged, and maintaining their reinvestments for MBS and longer-term Treasuries. Given the continued improvements in the job market and the increases in inflation, we are holding to our forecast of three Fed rate hikes for 2017, with the first hike most likely coming in June, but could happen as early as their next meeting in March. We also expect that Federal Reserve officials will be talking much more in 2017 about tapering or stopping reinvestments, which could lead to wider mortgage-Treasury spreads. Employment growth is healthy, wage growth is picking up, as is inflation. In combination, these factors point to rising rates in the U.S., even though external, international factors continue to exert downward pressure on rates, as well as some near term volatility. Our outlook is for these trends to continue for 2017 and 2018.
But as the new presidential administration and new Congress continue to take shape, much remains to be seen as to what the form, timing, and impact of proposed policies will be. Tax reform, health care reform, trade policy, infrastructure spending and a host of other policies may all influence growth. We will continue to monitor these developments and will incorporate them into our projections as and when the information is available.
The average total loan size in Arizona, accounting for both home purchase and refinance loan applications, was $212,764 in December, 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 15.3 percent. Refinance applications were down 29.7 percent, and took up 54.5 percent of the overall market, based on loan count. On a year over year basis, Arizona saw a small decrease in purchase loan applications of 1.5 percent and a decrease in refinance loan applications of 16.5 percent.
On a national basis, total monthly mortgage applications, including both home purchase and refinance, fell by 23.5 percent in the month of December compared to the month of November, and by 10.6 percent year over year, the first annual drop in applications in eleven months. Purchase applications decreased 0.5 percent year over year and while small, this is the first decline in annual purchase applications in two years. Vermont, North Dakota and Nebraska saw the largest declines in purchase activity over the year. Refinance applications declined 17.3 percent on an unadjusted basis compared to a year ago, with California, Maine and Vermont seeing the largest state declines. The average loan size for home purchase applications dropped slightly to $302,000, after having reached a survey high of $308,000, while the average loan size for refinance applications dropped to $242,000.