The Mortgage Bankers Association (MBA) expects a big year for homebuyer activity in 2021, with the trade group projecting purchase mortgage originations to rise by 8.5% annually to $1.54 trillion— a new all-time high.
The MBA unveiled its 2021 outlook during its annual convention and expo, which was held virtually this year due to the ongoing COVID-19 pandemic. Next year’s purchase volume prediction, which would eclipse the previous high of $1.51 trillion set in 2005, would account for the bulk of the anticipated $2.49 trillion in total originations (including refinances) in 2021.
The total origination volume in 2021 is expected to represent a step back from this year, when MBA anticipates a total volume of $3.18 trillion. If the 2020 figure proves true, it would be the most since the 2003 ($3.81 trillion). Despite the retreat, the total volume in 2021 would still be the second-highest figure in the past 15 years.
For Mike Fratantoni, MBA senior vice president and chief economist, the 2021 outlook remains dependent on several factors keeping the economic and social landscape fluid. The forecast assumes the creation of a COVID-19 vaccine to rein in the virus while kicking off a gradual, stimulus-aided recovery for the nation.
“The economy, labor market and housing market have all seen meaningful rebounds since the onset of the pandemic, but there is still profound uncertainty,” Fratantoni said. “Additional waves of the virus could lead to further lockdowns and more job-market instability. On the other hand, 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.”
In the meantime, the irrepressible market of 2020 has led to potential capacity constraints across the industry, with flourishing loan activity stretching personnel thin for many lenders. And with the pandemic stretching on and delinquency rates remaining high, companies will continue to have their hands full in helping borrowers deal with financial strain.
“Servicers will remain busy in 2021 helping borrowers exit mortgage forbearance and into longer-term solutions,” said Marina Walsh, MBA’s vice president of industry analysis. “This will likely result in the operational need for additional loss-mitigation personnel and increased servicing costs.”
At the same time, the MBA noted, lenders will need to be nimble and ready to downsize, considering that the refinance wave of 2020 is expected to slow over the next few years. Fratantoni noted that in 2021, particularly in the latter half, refinance activity should continue to dwindle as purchase growth trends upward.
The MBA also expects credit standards to level out as the economy continues its rebound.
“The expectation is that credit availability will slowly improve across the spectrum as the economy does over the next year, but some low-income borrowers and first-time buyers will likely face difficulties getting approved for a mortgage,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
As for mortgage rates, the MBA projects a small uptick next year, from 3.00% at the end of 2020 to 3.30% in 2021. The MBA also expects that the Federal Reserve will stick to its pledge and keep short-term rates anchored at zero through at least 2022.