Key Highlights

  • Mortgage Bankers Association (MBA) predicts short-term interest rates to stay at 0% throughout 2021
  • MBA predicts 30-year fixed rate mortgage to end 2020 at 3% and 3.3% in 2021
  • MBA forecasts mortgage originations to hit $3.18T in 2020 and to fall to some $2.49 in 2021
  • MBA predicts 2021 purchase originations to hit record high at $1.54T

Does it seem like the season of forecasting is coming early this year, or is it just me? However it feels, the Mortgage Bankers Association (MBA) gives us the first of many-to-come industry forecasts for 2021 via its annual event this last week.

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The MBA’s chief economist, Mike Fratantoni predicted that interest rates could rise in 2021 all the while staying near all-time lows due to the Federal Reserve’s continued cautious approach.

Here is the MBA’s Economic Forecast Summary:

2019        2020        2021        2022        2023

GDP       2.3%       -3.1%         3.1%       2.3%        2.0%

Growth

Inflation   1.8%      1.3%         2.7%        2.4%         2.5%

Unemployment 3.7% 8.4%       6.8%       5.4%         4.8%

10-year   1.8%       0.8%         1.3%        1.8%         2.4%

Treasury

30-year    3.7%     3.0%       3.3%            3.6%         3.9%

Mortgage

Fratantoni underlined the tremendous shock waves felt by the economy from “unprecedented” job losses due to the COVID pandemic this year even when compared to the 6.6M job losses during the Great Recession. Frantantoni said, “This distress is not going away soon. Many of these folks who thought they were on a temporary furlough are now reporting they have a permanent job loss. Many of the employers they thought they were returning to have gone bankrupt…we think the recovery from here is going to be a little slower than that what we have seen thus far in 2020.”

Fratantoni believes short-term interest rates will stay at 0% until 2022 at least but that rates will rise over 2021 from 3% this year to 3.3% in 2021.

Joel Kan, MBA Associate Vice President of Industry Analysis, talked about the association’s rising concern over housing inventory (currently sitting at a three-month supply) and the causal effect of low inventory on rising home prices.   Kan estimates an annual home price increase of approximately 4% to 5% that will continue into 2021.

The MBA forecasts mortgage originations to hit $3.18T in 2020, almost eclipsing the record high of $3.81T hit back in 2003. MBA Vice President of Industry Analysis Marina Walsh predicted that 2021’s purchase originations would hit an all-time record high $1.54T in 2021, overshadowing the previous high of $1.51T in 2005.

Walsh also predicted that servicers will continue to have their hands full into 2021 as borrowers, particularly FHA borrowers, may see high delinquency rates through the end of 2020 and into 2021. Walsh said, “Servicers will remain busy in 2021 helping borrowers exit mortgage forbearance and into longer-term solutions.” Also, the more that loans become seriously delinquent, the more servicer costs and personnel could rise.

Fratantoni concluded his remarks by discussing “the pandemic effect.” Fratantoni said, “The economy, labor market, and housing market have all seen meaningful rebounds since the onset of the pandemic, but there is still profound uncertainty…another pandemic-related stimulus package would result in faster economic growth and additional support for the housing market, albeit with slightly more upward pressure on mortgage rates…2021, particularly the second half, should be a year of continued purchase growth and slowing refinance activity…(and)as the spread of the pandemic is brought under control, the economy should expand around 3% next year, allowing the job market to improve, incomes to rise, and home sales to meaningfully improve.”

 

Thanks to the Mortgage Bankers Association.

Also read: Mixed Reviews for Housing Market, Economists Say 2020 To Side Step Recession, Freddie Mac Mortgage Bankers Association Agree


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