Mortgage Bankers Association Forecast: Expect Slow Economy, Drop in Mortgage Originations
Economic growth will continue to slow through the rest of 2006, but should return to near normal levels during 2007 and 2008, according to the latest economic forecast released this week by the Mortgage Bankers Association.
Total residential mortgage production in 2006 is expected to stand at $2.46 trillion, the fifth-highest level ever - but will drop another 14 percent in 2007 to $2.1 trillion and remain unchanged at that level in 2008.
“Despite sluggish growth, largely due to declining residential investment and auto production in the second half of this year, we are optimistic about a rebound in 2007,” said Doug Duncan, MBA chief economist and senior vice president for research and business development.
Here are a few other keys points from the forecast to keep in mind:
- Fixed mortgage rates are expected to remain around 6.3-6.4 percent through the rest of the year. Rates are expected to rise to about 6.7 percent by the end of 2007 and to about 6.8 percent by the end of 2008.
The yield spread between fixed- and adjustable-rate mortgages has remained at its lowest levels in more than five years. The share of adjustable-rate mortgages has declined from 30 percent at the beginning of the year to 20 percent in August.
- The ARM share from the Mortgage Bankers Association weekly survey of mortgage applications (which include both purchase and refi loans) has shown a much more modest decline. The ARM share remained elevated at nearly 27 percent of the number of loans by mid-October, compared with about 30 percent at the beginning of the year.
- Total existing-home sales for 2006 will decline by about 9 percent relative to 2005, pulling back by about another 8 percent in 2007. New-home sales are expected to decline by nearly 18 percent from a record high in 2005, but slip by about 8 percent in 2007.
- Existing-home price appreciation is expected to slow significantly this year, with median price gains decelerating to about 2.5 percent.
- Residential mortgage originations for purchase loans will reach $1.39 trillion in 2006 and will edge down to $1.32 trillion in 2007. Residential mortgage refinancing loans will total $1.07 trillion in 2006 and then decline to $807 billion in 2007.