The Mortgage Bankers Association (MBA) expects total mortgage origination volume to be slashed by nearly half on a year-over-year basis in 2022 before another substantial decrease in 2023.
The trade association’s latest forecast, presented at its 2022 annual convention and expo in Nashville, calls for $2.26 trillion in mortgage originations this year, down 49.1% from the $4.44 trillion originated in 2021. Of this year’s projected total, $1.59 trillion is expected to come from purchase mortgages, a 14.9% reduction from the prior year. Refinances, unsurprisingly, are set to take a drastic plunge, with the MBA anticipating origination volume of $671 billion at year’s end, a staggering slide of 73.9% from 2021.
The tough year has led to a nosedive in profits for many mortgage companies. Marina Walsh, vice president of industry analysis for the MBA, noted that production profitability at year-end 2022 will be in the red for the first time in four years.
“Origination volumes have declined, revenues have dropped and expenses continue to rise,” Walsh said. “Lenders have started to shrink excess capacity by reducing staffing levels, exiting less-profitable channels or exiting the business entirely.”
More staffing cuts appear to be necessary, per the MBA’s figures. A 24% to 30% decrease in mortgage industry employment from peak to trough would match the decline in production volumes from the heights seen during the past two years, according to MBA estimates.
Moving forward, origination volumes appear bound for another significant dip in 2023, although nowhere near the magnitude of this year’s pullback. The MBA is forecasting $2.05 trillion in total originations in 2023, a 9.3% decline from the 2022 projected figure. Purchase volume is forecast to recede 3.3% to $1.53 trillion, while the outlook for refi originations to calls for a 23.5% decrease to $513 billion.
MBA chief economist Mike Fratantoni expects the woes currently immersing the housing market to spread more fully to the economy at large within the next few months, culminating in a recession by early 2023.
“Next year will be particularly challenging for the U.S. and global economies,” he said. “The sharp increase in interest rates this year – a consequence of the Federal Reserve’s efforts to slow inflation – will lead to an equally sharp slowdown in the economy, matching the downturn that is happening right now in the housing market.
“MBA’s forecast calls for a recession in the first half of next year, driven by tighter financial conditions, reduced business investment and slower global growth. As a result, the unemployment rate will increase from its current rate of 3.5% to 5.5% by the end of the year. Inflation will gradually decline towards the Fed’s 2% target by the middle of 2024.”
As the economy weakens and inflation dwindles toward that figure, mortgage interest rates should fall from their present elevated levels, Fratantoni said. But the market appears to be in for more volatility in the near term with the Federal Reserve still bullish on assertive monetary policies. The MBA’s current outlook calls for mortgage rates to end 2023 hovering around the 5.4% mark.
Rates remaining high for a prolonged period, coupled with the slowdown in real estate transactions already underway, should help accelerate the growth rate of home prices, MBA economists noted. The group is forecasting minimal price movement in 2023 and 2024, with MBA vice president and deputy chief economist Joel Kan observing that the cooldown should allow household incomes “some much-needed time to catch up to elevated property values.
“However, many local markets will see home price declines, even if national price measures remain largely unchanged,” Kan said.