MBA Reduces Mortgage Finance Forecast
|May 20, 2004|
Projects $2.4 trillion in Originations in 2004
The latest mortgage finance forcast from the Mortgage Bankers Association is projecting $2.4 trillion in mortgage originations in 2004, down from last month's estimate of $2.6 trillion. MBA said that a rising interest rate environment will cut into refinancings in 2004, but home purchases will remain strong.
MBA Senior Vice President and Chief Economist Doug Duncan said, "because of strong employment growth in March and April, rising inflation pressures and solid production growth, the Federal Reserve is likely to begin raising rates in June. Our forecast has for some time anticipated that the Fed would wait until late this year before starting to raise short-term interest rates, but the growth of the economy has accelerated and raised the likelihood of a near-term rate increase."
MBA now projects that the 10-year Treasury rate will increase from 4.0 percent in the first quarter to 4.9 percent in the fourth quarter, averaging 4.5 percent for the year. Mortgage rates will increase correspondingly with the average 30-year fixed mortgage rate increasing to 6.4 percent in the fourth quarter, from 5.6 percent in the first quarter.
While higher interest rates are expected to cause a slight moderation in overall home sales and residential building in the months ahead. MBA is forecasting a record number of new-home sales and only a slight decline in existing-home sales.
MBA expects that the fall in refinance originations will be faster than expected because of a more rapid increase in interest rates than previously forecasted. Refinancings will total $1.0 trillion, down from the previously forecasted $1.2 trillion. Mortgages for purchasing homes will make up 57 percent of total originations, or $1.4 trillion.
The volume of adjustable-rate mortgages (ARMs) will likely rise as more households choose to use ARMs to manage affordability. About 33 percent of the total number of conventional purchase loans will be ARMs.