Mortgage origination volume in 2013 will top $1.7 trillion by yearend but fall under $1.2 trillion in 2014 as refinancing activity dries up, the Mortgage Bankers Association says. That represents an expected decline of 32%.
There will be an improving economy and growth in the job market, as the gross domestic product is expected to end 2013 at 1.8%, and then increase to 2.4% in 2014 and 2.7% in 2015, says MBA chief economist Jay Brinkmann. This should help the purchase market. In 2014, purchase loans should top $723 billion.
The MBA expects the unemployment rate to decline for two reasons, says Michael Fratantoni, who is replacing Brinkmann as the organization’s chief economist in February. Prior to September there have been 170,000 or so jobs created every month. That pace should continue over the next 12 months.
On the hand, the other reason for the decline in unemployment is the number of people looking for full-time jobs is lower. Some people have retired, while others have taken on part-time jobs.
Both trends will continue next year. There will be job growth and there won’t be a large influx of people returning to the labor market, he says.
Over the course of 2014, he expects unemployment to go below 7% and by early 2015 below 6.5%. That is the magic number for the Fed to raise its short-term interest rate target.
The origination projection for 4Q13—$283 billion—that is the quarterly pace economists are anticipating over the next two years. Refinancings are still the majority of originations, but that should start to change in the current quarter. The MBA projects refis should be a 48% share, says Fratantoni. It projects the same for 1Q14.
The bulk of the refi activity through the end of 2015 will be from the Home Affordable Refinance Program, but most of the easy loans from this category have already been done, Fratantoni says.
Any possible effect that the qualified mortgage rule might have on the market is included in the forecast, Brinkmann says.
Investors are pulling interest-only products from the market as well as offerings with terms longer than 30 years. That is how they are getting ready for QM, Fratantoni adds. Roughly 90% of current production meets the QM standard today, and that is because of the tight criteria lenders already are dealing with.
The question is how much of that remaining 10% will be able to adjust to fit to QM, he says.
It is unknown if there will be any drag on originations as a result of QM.
Even if a company is 100% ready to go in January, it is possible one of its counterparties isn’t, Fratantoni says. So January could be a tough month for the market, but the stragglers should catch up quickly.