Mortgage Bankers Association chief economist Jay Brinkmann gave attendees at the group's annual convention in Chicago one sentence of caution regarding how he came to make his economic forecast: “Don't put a whole lot of stock in any one particular number.” His latest projection is that mortgage companies will do $900 billion in originations in 2012, the lowest volume since 1997, down from an expected $1.2 trillion this year.
Brinkmann said this is the third year in a row he is making the prediction of lower refinance volumes and higher mortgage rates. He half jokingly said this might be the year where it might come true.
Almost all of the 2012 volume decline will come from refinancings. Home purchase volume will show a slight increase to $412 billion next year from $400 billion for 2011. The MBA predicts a drop in home sales next year, but there will be fewer all cash transactions.
While predicting rates will start to rise in the second quarter of next year, he has no particular driver for that rise nor one for the current 200 basis point spread between the 10-year Treasury and the 30-year fixed-rate mortgage to stay going forward (typically, the spread is 150 bps).
Michael Fratantoni, vice president, single-family research, said the secondary market reason for the wide spreads includes a lack of foreign interest in purchasing Fannie Mae and Freddie Mac mortgage-backed securities. There are a lot of sellers in the market, but very few buyers for MBS, which is not helped by the government-sponsored enterprises' need to reduce their holdings by 10% annually.
The primary market reason for the wide spreads, Fratantoni said, is lenders' capacity restraints to deal with new applications are causing them to keep their pricing up.
In some markets, there has been some home price growth, especially in nondistressed sales, and this is setting the stage to bring buyers who are at the margins back in to the market, Brinkmann said.
As for Operation Twist, the latest attempt by the Federal Reserve to keep rates low, Brinkmann noted that if anything, since the start of the program, rates on the 10-year Treasury have risen.
But the biggest driver of the U.S. economy going forward will be what is happening in Europe, which could drive an investor flight to quality, he said.
As for 2013, it is likely we might reach the point where prices are low and it will cost more rent than to buy.
That would lead renters to once again become homeowners, Brinkmann said.
In fact, even though the MBA predicts rates will go back above 5% at some point in 2013, volume for that year is projected to be $1.1 trillion, with $770 billion of that coming from purchases.
Meanwhile, demographer William Frey said there are two trends seen in the 2010 U.S. Census and other government survey.
There will be an aging white baby-boomer population juxtaposed with a younger, more diverse population in the United States.
That more diverse population will be the majority in the U.S. by 2042, if not earlier, he said.
The largest growth among any one group between the 2000 and 2010 censuses was with Hispanics, who saw their population increase over 55%
He also noted there was an absolute decline in the number of whites under the age of 18; the median age for whites is 41.
Frey redefined the nation into three regions—Melting Pot America, the New Sun Belt and the Heartland.
Melting Pot America consists of eight states, including New York, California, Texas and Florida, where the population is most diverse. Just one-third of residents are native born.
The New Sun Belt region consists of the fastest-growing states—the mid-Atlantic between Virginia and Georgia, plus the Pacific Northwest and the Southwest, among others—while the Heartland states (27 in total) are the most homogenous (mostly white) in population.
Frey said more baby boomers are looking to age in their current area of residence. These areas, especially in the Heartland states, will need to create housing solutions for this group.
Among younger people, many are not migrating to other areas of the country because of the problems with the economy. Rather, they are staying where they are and exploring opportunities.
