According to MBA Vice President of Research and Economics Lynn Fisher, as the Federal Reserve begins to see certain economic targets being met, the expectation is that the economy should see continued growth throughout the year. By meeting those economic benchmarks, the growth should steadily increase depending on the employment numbers and that should steadily bolster mortgage originations.
Improving economic indicators will have a profound effect on the mortgage industry moving forward. Fisher explains that as it stands, unemployment – taking into consideration not only the unemployed but also the underemployed – stands at roughly 9.4%. Even with continued growth, the MBA estimates that unemployment levels will only drop by 0.4 percent in 2017.
There is also a likely chance for a rate increase in April after inflation was reported at 2.5% in mid-February and March. Although the MBA predicts a rate hike to occur around June, improving economic conditions may possibly force the Federal Reserve to increase the federal lending rate for only the third time in nearly a decade. As interest rates rise, originations will suffer as a result, and the MBA forecasts that we could see a 50% drop in mortgage starts if steady rate increases ensue.
While some areas of the economy show growth, the MBA suggests a modest 10% boost to housing starts over the year. Fisher notes that the construction industry is still moving slowly due building permit challenges and a lack of qualified builders, saying, “It’s taking up a while to get our construction sector back together.”
While January’s employment report showed a large spike of 36,000 construction jobs, some areas are seeing a decline in new housing development. For example, San Francisco’s competitive employment market is siphoning off construction workers, causing developers to concentrate on higher-priced homes.
The MBA report comes in stark contrast to their prediction back in October 2016, during their annual conference in Boston, where they estimated double-digit mortgage origination growth for 2017.
Due to the growing economic optimism and modest inflation that will likely fuel one or more Fed rate increases in the coming months, the MBA asserts that the market will continue a slight downward trend for mortgage originations over the next couple of years. Looking on the bright side – the small decrease in originations is down from all-time record high mortgage originations that have been steadily realized over the past few years.
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