MBA Chief Economist: Expect Mortgage Originations To Decline In 2023

By KIMBERLEY HAAS

Mortgage originations are expected to decline in 2023 as market factors continue to present challenges for those in the industry.

Michael Fratantoni, the Mortgage Bankers Association’s chief economist and senior vice president of research and industry technology, said during a session at the National Advocacy Conference in Washington, DC, this week that after the whirlwind of 2020 and 2021, the residential slowdown which started in 2022 will continue through this year.

“This has been an extraordinarily tough couple of years for mortgage lenders. Origination volume dropped 50% from ’21 to ’22,” Fratantoni said. “We’re forecasting another 20% decline in 2023 to a level of about $1.8 trillion.”

Although the recent banking market uncertainty has not helped, Fratantoni pointed out that economists have been predicting a recession for some time.

“We, many other forecasters, have been predicting a recession for this year. Not surprising, the banks began to tighten credit standards,” Fratantoni said.

Fratantoni said that tightening began in January.

High interest rates have contributed to the slowdown.

Interest rates increased last week for the first time in more than a month, pushing mortgage applications down.

The average interest rate for 30-year fixed loans jumped from 6.30% to 6.43% after ticking down consistently since the bank failures.

Fratantoni said first-time buyers, people who plan to upsize their house, and homeowners who would consider refinancing have all been affected. He said there is a real sensitivity to rates, but there are some people who may have adjusted to the idea of paying 6% or slightly more for interest on a loan.

“In my mind, what I think is happening, is this is really that first-time homebuyer. That first-time homebuyer has set a budget based on 6, 6-and-a-quarter rate, and if they see that, they’re ready to go. They no longer have in mind the 3% rate, right? Your existing homeowner, potential move-up buyer, that’s much more constrained by the history we’ve had over the past three to four years. But I think the first-time buyers are ready to go,” Fratantoni said.

Fratantoni said there are millions of people between 28 and 38 years old.

“There are a lot of first-time buyers that are interested in getting into this market,” Fratantoni said.

Another factor driving down originations is the fact that home listings are down. Fratantoni said Redfin reports listings are down 22% year-over-year.

“This is really a supply constraint that we’re seeing. If we had more inventory, we’d sell more homes, do more purchase mortgages,” Fratantoni said.

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