Bad news: Mortgage industry heads for layoffs

January 27, 2005

Up to 80,000 jobs could be slashed over next 3 years

By Janis Mara
Inman News

Everything's coming up roses, or at least greenbacks, in the next three years, with strong economic growth through 2007 and strong, if only slightly slower, housing demand, according to the Mortgage Bankers Association.

"It's going to be a 'what have you done for me lately' situation, because though things are still at a record level, people are going to look at the records of the last two years and feel it's slowed," said Doug Duncan, MBA's chief economist, at the association's State of the Real Estate Finance Industry press briefing Thursday. The group also shared its advocacy agenda for 2005.

The MBA forecasts the gross domestic product will grow 3.6 percent this year, 3.6 percent in 2006 and 3.5 percent in 2007. The unemployment rate will decline from the current level of about 5.4 percent to 5.2 percent by the middle of 2007.

"There will be strong economic growth and continued employment growth in 2005," said Duncan.

However, there's some bad news for real estate industry professionals, according to MBA.

"Industry employment is at the record level of 469,000. There will be layoffs in 2005," Duncan said. He noted that mortgage-related employment varies from 15 percent to 18 percent. As many as 80,000 jobs could be lost over the next three years, he said.

The MBA expects the Treasury rate will rise to an average of 4.7 percent by the fourth quarter of 2005 and 4.9 percent during the fourth quarter of 2006. The rate will reach 5.3 percent during the fourth quarter of 2007, the MBA predicted. Mortgage rates will follow a similar pattern.

"There will be a slight uptick in the inflation rate in 2005, which will support the Fed's continued march upward with the Fed funds target as the Fed maintains focus on its target of keeping inflation at bay," Duncan said.

"Inflation has picked up modestly but not alarmingly. The Fed has spent the past 25 years driving a stake through inflation's heart and will continue on its present path," he said. Duncan had made similar comments about inflation in MBA's update to its long-term predictions for 2004, 2005 and 2006 released in April 2004.

Existing-home sales will come off record levels and fall by 7.2 percent in 2005, another 7 percent in 2006 and a bit more than 1 percent in 2007. Duncan commented that this means sales in 2007 will reach was then a record level of 2002.

New-home sales will fall by 6.1 percent in 2005, by 10 percent in 2006 and another 3 percent in 2007, the MBA predicted.

In addition, home-price growth is expected to be less rapid, with existing-home prices increasing 4.7 percent during 2005 and new-home prices increasing 3.7 percent. Price increases in 2006 and 2007 are expected to be in the 3 percent to 4 percent range.

Residential mortgage originations for both purchase and refinance loans will be down modestly from the second biggest year on record in 2004, MBA said. Purchase loans will total $1.559 trillion in 2005, decline slightly to $1.517 trillion in 2006 and then rise to $1.556 trillion in 2007.

"There's not going to be a bubble breaking," said Duncan. "Maybe there will be a Don Ho phenomenon, tiny bubbles."

Duncan's comment was in line with other forecasts that the real estate market will slow in 2005, but there will be no "bubble burst."

The association also shared its advocacy agenda for 2005.

The MBA will advocate strong regulatory oversight of GSEs such as Freddie Mac and Fannie Mae. It will seek legislation reauthorizing the Terrorism Risk Insurance Act, and will support legislation combating abusive lending practices. MBA will seek to strengthen the Federal Housing Administration and will support removing restrictions to investment through REMICs, preserving the mortgage interest tax deduction and making mortgage insurance reforms tax-deductible.

Copyright 2005 Inman News

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