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Mortgage production will fall 9% in 2023: MBA forecast

Industry observers believe that the MBA's projections are still "rosy"

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Recession is coming, according to the Mortgage Bankers Association

The MBA forecasts a recession in the first half of 2023, with the unemployment rate at 5.5% and inflation at the 2% target by the end of next year. The economic dislocation will bring mortgage originations down to $2.05 trillion in 2023, compared to $2.26 trillion this year, according to the trade group. 

However, other industry forecasters believe that the MBA’s projections, which anticipate a 9% production decline in 2023, are actually rather “rosy.” 

According to those forecasters, mortgage rates are still yet to reach their peak, and there are uncertainties with how far the Federal Reserve’s monetary tightening policy will go. 

Many local markets will see home-price declines, even if national price measures remain largely unchanged.

Joel Kan, MBA’s vice president and deputy chief economist

MBA’s “conservative” projections?

The MBA’s forecast calls for a recession in the first half of next year, “driven by tighter financial conditions, reduced business investment, and slower global growth,” Mike Fratantoni, the trade group’s chief economist and senior vice president for research and industry technology, said during the MBA 2022 Annual Convention & Expo in Nashville. 

In 2023, purchase originations are forecast to decrease by 3% to $1.53 trillion. Refinance volume is anticipated to decline by 24% to $513 billion, according to the MBA. Meanwhile, home sales are expected to drop from 5.2 million in 2022 to 4.7 million in 2023. 

“The slowdown in housing activity and higher mortgage rates will quickly cut the rate of home-price growth. MBA expects national home prices will be roughly flat in 2023 and 2024, allowing household incomes some much-needed time to catch up to elevated property values,” said Joel Kan, MBA’s vice president and deputy chief economist. “However, many local markets will see home-price declines, even if national price measures remain largely unchanged.”

With falling production, mortgage companies are slashing expenses, primarily through layoffs and vendor contracts. The trade group expects a 25%-30% decrease in mortgage employment from peak to trough during this cycle. And, despite the effort to cut costs, production profitability in 2022 will be negative for the first time since 2018. 

I’d much rather have two consecutive quarters of recession and get it over. I hope that’s where Jay (Jerome Powell) ends up planning this.

Paul Ryan, Former speaker of the house

“Origination volumes have declined, revenues have dropped, and expenses continue to rise,” said Marina Walsh, MBA’s vice president of industry analysis. “Lenders have started to shrink excess capacity by reducing staffing levels, exiting less profitable channels or exiting the business entirely.” 

For some mortgage industry executives, however, MBA estimates are conservative.

“Mortgage insurers are forecasting between $1.3 trillion and $1.7 trillion of mortgage originations next year,” an executive from a top depositary lender told HousingWire. Another executive from an independent mortgage bank said some wholesale originators expect $1.7 trillion in total volume for 2023.

Several mortgage executives told HousingWire they expect mortgage rates to reach 8% in the coming weeks. (Rates were around 7.15% on Tuesday, according to Mortgage News Daily.)

The Fed’s mission 

Surging mortgage rates reflect the Federal Reserve’s tightening monetary policy to tame inflation – and there are still uncertainties about its next moves. 

MBA’s baseline forecast is for mortgage rates to end next year at around 5.4%. As the economy slows, longer-term rates will begin to fall from current peak levels, according to Fratantoni. However, there will continue to be significant volatility due to geopolitical, economic and monetary policy uncertainties. 

Rates will probably stay there (at the peak) for much longer than people want. But at the end of the day, I hope for a short and shallow recession.

Roger Ferguson, former vice chair of the federal reserve

Paul Ryan, speaker of the U.S. House of Representatives from 2015 and 2019 and now a partner at private equity firm Solamere Capital, believes it’s up to the Fed to “get inflation wrenched out of the system because nothing’s going to happen on the fiscal policy side, good or bad.” In his opinion, it’s better to increase rates quickly. 

“Let’s get it over with a punch in the rates, get it out of the way, because we’re gonna have some serious stagflation for a long time,” Ryan said. “I’d much rather have two consecutive quarters of recession and get it over. I hope that’s where Jay (Jerome Powell) ends up planning this,” he said during the MBA conference.  

According to Ryan, the Fed is unified now, but once it starts to get more rate hikes, there’s going to be some dissension, and that’s a moment of worry because it will not “speak with one voice.” 

“That’s where we can have a problem,” he said. “So, they gotta finish the job.”

Roger Ferguson, vice chairman of the Board of Governors, U.S. Federal Reserve System from 1999 to 2006, believes the Fed will continue its tightening policy for the next three meetings, with a 50 basis points hike in December and two 25 basis points at the beginning of 2023. 

“I fear that, if I’m wrong, it’s because I’ve underestimated (the rate hikes),” he said during the MBA conference. “Rates will probably stay there (at the peak) for much longer than people want. But at the end of the day, I hope for a short and shallow recession.” 

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