Total 2003 Originations May Reach $1.57 Trillion
October 24, 2002
Moderate Economic Growth in 2003 Will Gradually Slow Mortgage Market
Chicago, IL – The Mortgage Bankers Association of America (MBA) today released its annual economic forecast for 2003. MBA anticipates that the current economy will gradually improve and lead to modest increases in mortgage rates over the next 18 months. This will likely slow originations to near $1.57 trillion.
"Mortgage rates are poised to increase gradually as economic activity picks up next year," said Doug Duncan, MBA senior vice president and chief economist. "This will slow mortgage funding activity over the course of next year, but in the end, 2003 will likely be the third highest volume production year on record."
This year, the economy has grown at a moderate, but erratic, pace. Growth was strong in the first quarter, weak in the second, strong in the third, but clearly weakening again in the fourth. The economy still faces problems that reflect the bursting of the bubbles in the stock market and the high tech industries. Going forward, consumer spending is apt to slow in response to the huge loss of wealth associated with declines in equity prices, and business capital spending will remain weak. Fortunately, these effects are likely to wear off gradually next year.
"Therefore, economic growth for the whole year should be around three percent. As productivity gains remain strong, inflation will stay under control," said Lyle Gramley, economic consultant to MBA and former Federal Reserve Board Governor.
The final volume of loans in 2002 is likely to approach $2.42 trillion according to Duncan. The combination of low interest rates and accumulated home value appreciation is generating the greatest origination volume in history.
While technology has helped to limit the incidence of bottlenecking, it is expected that this and low rates will cause spill over of 2002 refinance volume into the first half of 2003. Therefore, in spite of a projected decline in refinance activity, origination volume for 2003 may be the third highest on record. Mortgage rates for 30-year loans will average 6.5 percent before ending the year in the 6.8-7.0 percent range. MBA expects this to gradually slow home purchase activity in the second half of the year. Total 2003 originations are expected to reach $1.57 trillion.
MBA expects moderation in home prices as rates gradually pick up and a more normal inventory level emerges. "Those who predict a collapse in home prices are likely to be disappointed," Duncan said. "On a broad market basis, the economic fundamentals indicate some decline in price appreciation, but in the absence of a sharp and sustained rate increase, outright price declines are unlikely. Demographic factors and modest supply will both support a strong market for some time into the future."
Source: Mortgage Bankers Association