MBA Forecast: Lowest Loan Production Since 1997


The third quarter is shaping up to
be the best in 2011 from the standpoint of mortgage originations according to
the Mortgage Bankers Association (MBA).  Figures released on Friday
predict that the September-December period will see a total of $294 billion in
originations and the year will finish up with $1.1 trillion in residential
volume.  The year-end results will be approximately $100 billion higher
than earlier forecasts due to more refinancing than anticipated.  Purchase
originations however will be lower than predicted.

Despite the upgraded expectations it
appears that 2011 will end up with a lower volume in every quarter of the year
than was seen in 2010, and MBA does not see any growth in the coming
year.  “Despite lower forecasted mortgage rates, weaker projected
economic growth in 2012 led to a reduction in MBA’s origination forecast for
that year to $931 billion, which would be the lowest volume originated since
.”  The estimate for 2012 is a downgrade of about $30 billion
from earlier predictions.

Estimated and Actual Mortgage Volume

(Figures in $billions)

Refinancing is estimated to account
for $191 billion or 65 percent of the volume in Q3, $129 billion (58 percent)
in Q4 and 63 percent for the entire year.  Even though the volume of
mortgages is predicted to decline next year, the share of purchase mortgages
will increase to 57 percent of the total.

Jay Brinkmann, MBA’s Senior Vice
President of Research and Education and Chief Economist said there have been
many unprecedented events over the past month including the debt ceiling
crisis, SP’s downgrade of US debt, the debt crisis in Europe, a commitment
and a high level of stock market volatility. 

“While there is substantial
uncertainty about how these events will impact consumer and business
behavior,” Brinkmann said, “we do not believe that the economy is
facing the same types of risks as in 2008.   Were the US economy to
enter a recession, it would likely be the result of an external shock, and
would be shallow and relatively brief.  On the other hand, given that both
fiscal and monetary policymakers’ options are limited at this point, it would
be difficult for policy changes to soften any blow.”

Brinkmann continued, “As
negative as much of this outlook appears to be, there are some indicators that
have been more promising.  None of these factors suggest any strong
growth, but in total they do suggest a path out of this slowdown. Thus, we have
revised our projections from previous estimates for GDP growth downward from
1.9 percent growth to 1.5 percent growth for 2011 and from 2.8 percent growth
to 2.3 percent growth in 2012. Given the overall path of economic growth, we
expect that the unemployment rate will stay above 9 percent for the remainder
of 2011 and drop only slightly below 9 percent by the end of 2012.”

“Nothing in the housing market
data suggests any significant change from our previous expectation of a
frustratingly slow period with lackluster sales volumes.  Purchase
application volumes remain stuck at low levels, and even fell further in
response to the volatility surrounding the events described above. 

Relative to last month, we have reduced our estimate for purchase originations
in 2012 significantly, matching our more pessimistic outlook for the economy,
the job market, home sales, and home prices.  We still see purchase volume
increasing in 2012 relative to 2011’s volume of $412 billion, but now see just
a little more than $100 billion of increase on a year-over-year basis.”

MBA is predicting total sales of
5.26 million new and existing homes by the end of this year, compared to 5.05
million in 2010.  Sales of both new and existing homes will rise slightly
in 2012, totaling 5.53 million for the year. The median price of an existing
single family home will be $171,800 in the third quarter but will drop to
$167,200 in the fourth quarter and will continue to decline through the first
half of 2012, ending the year at $172,400.

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