MBA’s Spring Forecast – Record Purchase Volume

Key Highlight

• 27% of prospective Millennial buyers plan to buy home in next 12 months
• Refinance demand to cool as 2021 progresses

Mortgage Bankers Association (MBA) Bullish in its Spring Housing Market Forecast

Mike Fratantoni, the chief economist and senior vice president with the Mortgage Bankers Association (MBA) could not be more bullish about the spring housing market.   In fact, the MBA is forecasting “…a record-breaking year of purchase origination volume.”

Fratantoni believes that a strong spring housing market is just the first step toward a record-breaking year.

Mortgage Rates

Fratantoni obviously recognizes that mortgage rates are rising due to an improving job market, improving unemployment rates and favorable demographic trends.  That said, the MBA is forecasting that the Freddie Mac survey rate that includes purchase loans only, not refinances, will rise about 3.5% by the end of 2021.

Fratantoni believes that as long as mortgage rates do not climb about 4%, potential buyers will not be dissuaded to buy.  Likewise, Fratantoni believes that refinances, much more vulnerable to mortgage rate increases, will cool throughout the year.

Demographics

The largest slice of Millennials is now 29 years old and fast approaching the peak first-time homebuyer age of 32 or 33.  The MBA forecasts that this wave of young buyers will support home purchases for at least the next few years.

Interestingly, in the Q4 2020 survey of prospective homebuyers by the National Association of Home Builders (NAHB), 27% of Millennial respondents said they planned to buy a home in the next 12 months.

Strong Demand

So far in 2021, y/y growth in purchase applications is up by double-digit percentage points.  Likewise, existing home sales are at their highest levels in 15 years.

The Problem – Lack of Inventory

The industry problem continues to be the lack of inventory. According to National Association of REALTORS® (NAR) data, there was only 1.9 months of supply with just over 1M homes on the market nationwide at the end of January.

This problem only got worse in February when new listings dropped -207,000 y/y (not yet included within calculations) due to freezing weather and snowstorms, according to realtor.com. 

Lack of inventory obviously translates into sharp increases in home prices. Not surprisingly, price appreciation is accelerating even faster than the FHFA’smost recent read of +10.8% y/y gains.  Hottest markets in the Mountain West and Northwest are well above income growth.

New Home Building is Crucial to MBA’s Bullish Forecasting

Even though level of existing home sales turns out to be about 6-7 times the level of new home sales, the MBA is closely watching the pace of new home construction.

In 2020, nearly 795,000 of the 990,000 single-family housing starts were in the South and West regions of the country.  The fastest-growing states showing the most population increases included Idaho, Arizona, Nevada, Utah and Texas.  Look to these states and these regions for new construction to accelerate in 2021.

Thanks to the Mortgage Bankers Association, National Association of Home Builders, National Association of REALTORS®, realtor.com and HousingWire.

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