The Mortgage Bankers Association's (MBA) chief economist echoed much of what Freddie Mac's economists said this afternoon as he hiked MBAs estimates for mortgage originations both this year and in 2013. Jay Brinkmann said he expects to see the value of originations hit $1.7 trillion this year and $1.3 trillion in 2013. Next year's increases will be driven by a spillover of refinances from 2012 into the first half of 2013.
The Association revised its 2012 estimates of refinancing to $1.2 trillion in 2012 and expects it to fall to $785 billion in 2013. At the same time it projects that purchase originations will climb to $585 billion next year, up from a revised estimate of $503 billion this year.
Brinkmann said that the Association had expected originations in 2012 to be front-loaded into the first half of the year then refinancing would fall off as rates increased. "Instead we saw the refinance market grow during the year due to a combination of low rates thanks to QE3, slowing global growth because of continuing problems in Europe, and adjustments in the HARP and FHA refinance programs. We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refis extending through the first half of the year followed by a rapid drop-off in the second half."
MBA expects a 16 percent increase in purchase originations next year with every quarter doing better than the same quarter in 2012. Modest growth in the economy, an increase in owner-occupied sales financed through mortgages as opposed to cash purchases by investors, an increase in new home sales, and a small increase in average home prices will all play a role in the growing dollar volume. This assumes, Brinkmann said, that changes in the regulatory environment are not unduly disruptive and FHA and the GSEs do not notably tighten credit policies.
The economist said he thought it was likely that the purchases of mortgage backed securities (MBS) by the Federal Reserve in its QE3 program will keep mortgage rates below 4 percent through the middle of next year. "Given our expectation that originations will be front-loaded in the first half of 2013, the Fed's purchases during the second half of 2013 could approach 50 percent of all mortgages originated in the last six months of the year, obviously with the effect of holding down rates, although there is a possibility that the Fed could shift into Treasury securities before the end of 2013," Brinkmann said.
"The originations forecast is based on expectations of very modest increases in economic growth in 2013 relative to 2012, but growth nonetheless," he continued. "We expect gross domestic product to rise 2.0 percent in 2013 versus only 1.6 percent in 2012, about equal to the growth rate in 2011 but well below the 3.1 percent growth rate we saw in 2010. The growth will be driven by a combination of the biggest annual increase in residential fixed investment we have seen since 1992, as well as small increases in consumer spending and business investment."
Brinkman said he expects unemployment to remain around 8 percent until the middle of next year before falling to 7.8 percent by the end of 2013. The broader measures of unemployment that are most predictive to the demand for housing are going to remain stubbornly high with private sector job growth staying in the range of 125,000 to 150,000 jobs per month, well below what we need for a robust market in home sales, construction, and purchase originations.
He said there are a number of threats facing the economy the most immediate being the so-called fiscal cliff which could bring both large tax increases and spending cuts at the first of the year. The tax increases in particular would be devastating to economic growth and if Congress doesn't act to stave them off the entire weight of these events could cut 3.5 to 4 percent off of MBA's forecasts.
"While the fiscal cliff is the most immediate threat, it is at least one we can control, Brinkmann concluded. "The others are primarily international and pose longer-term headwinds for the US economy. These include the ongoing economic slowdown in the European economies and how the fiscal problems in southern Europe will be resolved; the slowdown in growth in China and the cascading impacts on Japan, Taiwan, Australia, New Zealand and the countries of southeast Asia; and the prospects of a war involving Iran and Israel and the response of the other countries in the Middle East and the impact on world oil prices."
