Total mortgage origination volume is expected to increase to $1.95 trillion in 2024 from the $1.64 trillion expected in 2023, according to the Mortgage Bankers Association (MBA).
By loan count, total mortgage origination volume is also expected to increase by 19 percent, to 5.2 million loans in 2024 from 4.4 million loans expected in 2023. Further, purchase originations are forecast to increase 11 percent to $1.47 trillion next year.
“Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023,” Mike Fratantoni, chief economist and senior vice president for research and industry technology at MBA, said. “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected. Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024.”
Fratantoni, along with Deputy Chief Economist Joel Kan and Vice President of Industry Analysis Marina Walsh presented MBA’s 2024 outlook at its 2023 Annual Convention & Expo this week.
“The job market will likely slow as we enter 2024, with fewer jobs added and the unemployment rate increasing from its current rate of 3.8 percent to 5.0 percent by the end of 2024. Inflation will gradually decline towards the Fed’s 2 percent target by the middle of 2025,” Fratantoni added.
As the economy slows and inflation moves lower, longer-term rates will decline from current levels, helping to bring mortgage rates lower, Fratantoni said. However, the spread between mortgage and Treasury rates remains roughly 120 basis points wider than typical, due to a combination of factors. MBA’s forecast is for mortgage rates to end 2024 at 6.1 percent and reach 5.5 percent at the end of 2025, as Treasury rates decline and as the spread narrows.
Also, MBA expects national home prices to grow over the next three years, as tight inventory supports price growth. Kan said first-time homebuyers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages.
“New home sales continue to be stronger than existing-home sales, as buyers increasingly turn to newly constructed homes given the dearth of existing home listings and how competitive the bidding process still is. Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months,” Kan said.
Walsh added that production losses will likely persist through next spring.
“Excess capacity continues to be a challenge for mortgage lenders, with low productivity levels and high expenses per loan,” Walsh said. “Lenders have reduced their head counts and gross expenses, but the record-low volume is a primary driver of these escalating per-loan costs. On the servicing side of the business, low delinquencies and prepayments means that servicing net operating income has risen in 2023, enabling many lenders to stay profitable overall. In 2024, delinquency rates are likely to increase as unemployment increases and borrowers are stressed by increasing property taxes and insurance and the resumption of student debt payments.”