MORTGAGE INDUSTRY UPDATE

Market Update

JOEL KAN
Economist, Mortgage Bankers Association

 

The Mortgage Bankers Association projects that 2018 will bring $1.2 trillion in purchase mortgage originations – a 7.3 percent increase from 2017. The biggest reason for the increase is the continuous  improvement of the economy. We forecast that monthly job growth will average 125,000 per month in 2018 and that the national unemployment rate will decrease to 4.0 percent by the end of 2018.

The job market remains strong, demographic trends are quite favorable, mortgage credit is becoming more available to qualified borrowers and home prices should continue to rise. All the pieces are in place for stronger growth in 2018 and beyond.

Our projection for overall economic growth is 2.0 percent for 2018, slowing slightly to 1.9 percent in 2019 and 1.8 percent in 2020. Be aware that the long run growth potential in the U.S. is somewhat lower, as productivity gains have been persistently slow.

The housing market has been hamstrung by insufficient supply with inventories of homes remarkably low given the home price growth we have experienced. As these headwinds ease, home purchase originations will increase at a faster clip in 2018, nearly double the rate that they increased in 2017. However, refinance originations are projected to decrease by 28.3 percent from 2017 levels, dipping down to approximately $430 billion. Refinance originations are very closely correlated to interest rates, and those are projected to continue to increase.

We expect the Fed will raise rates in December 2017 – three times in 2018 and twice in 2019. The Federal Reserve has begun reducing its holdings of Treasury securities and mortgage backed securities, and this will put additional, modest upward pressure on mortgage rates.  We expect that the 10-Year Treasury rate will stay below three percent through the end of 2018 and 30-year mortgage rates will stay below 5 percent. Although inflation remains low, a tight job market is likely to increase inflationary pressures in the near term.

In total, mortgage originations will decrease from $1.69 trillion in 2017 to $1.60 trillion in 2018, then increasing slightly to $1.64 trillion in 2019 – with purchase originations of $1.24 trillion and refinance originations of $395 billion.

Looking at the current state of the market in Arizona, the Grand Canyon state accounted for 3.2 percent of the home purchase volume nationwide and 3.2 percent of refinance volume nationwide in October 2017 – the most recent month for which data from MBA’s State Mortgage Application Report is available. Purchase volume decreased by 18.2 percent compared with September 2017, but increased by 11.9 percent over the prior year. Refinance volume decreased 28.7 percent compared with the previous month and decreased 32.6 percent year-over-year.

In Arizona, the average loan size was $247,500 for home purchase applications and $216,902 for refinances in the month of October 2017. In the U.S., the average loan size was $315,984 for home purchase applications and $256,479 for refinance applications.

The investor share of home purchase mortgage activity in October 2017 was 4.3 percent in Arizona, compared to 4.9 percent nationwide. Applications for second homes accounted for 7.3 percent of all home purchase mortgage activity in Arizona and 5.2 percent nationwide.

The delinquency rate for mortgage loans on residential properties in Arizona was 3.30 percent at the end of the third quarter of 2017, an increase of 38 basis points from the second quarter of 2017, according to the 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 fell 1 basis point to 0.17 percent, while the percentage of loans in the foreclosure process at the end of the quarter fell basis points to 0.41 percent.

The delinquency rates for FHA and VA loans were 2.63 percent and 2.96 percent, respectively—up 26 basis points for FHA loans and up 31 basis points for VA loans.

The percentage of FHA loans in foreclosure decreased 4 basis points to 0.35 percent. The percentage of VA loans in foreclosure decreased 4 basis points to 0.54 percent.

Among the 50 states and the District of Columbia, Arizona ranked 41 in delinquencies and 42 in foreclosures started. Mississippi ranked first in delinquencies with a rate of 8.83 percent and New Jersey ranked first in foreclosure starts with a rate of 0.46 percent.

 

Joel Kan is responible for managing the production of Mortgage Banker Association’s macroeconomic and housing market forecasts. For more information on MBA’s Weekly Application Survey and State Mortgage Application Report, National Delinquency Survey, MBA’s Chart of the Week or Mortgage Finance Forecasts, please visit http://www.mba.org/research.