According to Mike Fratantoni, chief economist and senior vice president of research and industry technology for the Mortgage Bankers Association (MBA), there is “absolutely” potential for a U.S. recession next year.
Fratantoni told a crowd of mortgage professionals at the MBA’s Annual Convention and Expo in Austin that a recession, if it were to happen, could in fact occur as early as first-half 2020. Citing ongoing trade uncertainties and international volatility, Fratantoni said that geopolitics — maybe now more than ever — are especially important to the U.S. economy.
Geopolitical factors are becoming more relevant to the fate of the U.S. housing market, Fratantoni suggested. The MBA anticipates the nation’s economic growth will retreat to 0.9% year over year in 2020. Fratantoni and fellow MBA economist Marina Walsh signaled that even though the outlook for 2019 is strong, the mortgage industry could be in for a slight pullback in the upcoming years.
“We now are forecasting that full-year [mortgage originations in] 2019 [are] going to be $2.06 trillion,” Fratantoni said. “That is in the neighborhood of the $2 trillion markets that we saw in 2016 and 2012. … T]his is actually the highest volume we’ve had since 2007. It has been an extraordinarily good year.”
Origination volumes are forecast to decrease to about $1.89 trillion in 2020 and $1.74 trillion in 2021, Fratantoni noted. Part of the retreat in 2020 may be due to the refinance boom of 2019 tapering off, despite some refi activity spilling over into the first half of next year. The MBA forecasts that refinance originations will slow next year to $599 billion — a drop of 24.5%. The MBA anticipates that purchase-loan growth of 1.6% — thanks to low interest rates and millennial homebuyer demand — won’t be enough to offset a drop in total originations.
And if refi volume fades during the second half of 2020, many mortgage lenders may be revisited by the margin pressures they faced in 2018.
“The industry continues to be challenged by elevated costs and, as we saw in 2018, the mortgage market is quite competitive,” Fratantoni said. “Revenues fall when lenders are chasing fewer loans.”
Due to political and economic pressures, Fratantoni predicted that the Federal Reserve will cut rates once more by the end of 2019. He forecast a gradual increase in the 10-year Treasury rate to about 1.9% next year, which would nudge the 30-year fixed rate upward to about 4%.
Home prices, meanwhile, are expected to continue to rise, but with further deceleration as new inventory is added to the market.
“Moderating price growth is healthy as it allows household incomes to catch up with home values,” he said. “This improvement in affordability will lead to more home sales, especially given the rise in household formation and growing demand from first-time homebuyers.”