The Mortgage Bankers Association said it expects falling mortgage rates will add some zest to refinances this fall, but it softened its outlook for purchase originations.
The MBA's Sept. 19 forecast expects rates on 30-year mortgages will end the month at 6.6% — 10 basis points lower than the MBA expected they would be in its Aug. 20 forecast. It now forecasts they will fall further to 6.5% by year’s end.
One result was that it raised its forecast for fourth-quarter refinances by 16%. It now said it expects lenders will originate $207 billion in refinances from October through December, 53% more than a year earlier.
Meanwhile, it lowered its fourth-quarter forecast for purchase originations by 3%. It said it now expects purchase originations to rise 9.5% to $346 billion in the fourth quarter.
In the week ending Sept. 12, the volume of mortgage applications was 30% higher than the previous week as 30-year mortgage rates fell to 6.39% — their lowest level since last October.
“Homeowners responded swiftly, with refinance application volume jumping almost 60% compared to the prior week,” Chief Economist Mike Fratantoni said.
“Homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey,” Fratantoni said. “Almost 60% of applications were for refinances, but there was also a pickup in purchase applications.”
Despite lower fixed rates, Fratantoni said more borrowers chose adjustable-rate loans, especially for refinances. As a result, the ARM share reached its highest level since 2008.
“Notably, ARMs typically have initial fixed terms of five, seven or 10 years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did,” he said. “Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed rate loans.”
For the year, the MBA’s Sept. 19 forecast expects total originations to rise 21% to $2.03 trillion — an upward revision of just under 1%.
Purchase originations are expected to rise 2% to $1.36 trillion this year, close to the MBA’s June 20 forecast. Refinances are expected to nearly double to $670 billion this year, which is close to the MBA’s May 16 forecast.
The MBA’s optimism on the economy is still waxing. Its GDP forecasts have grown from 0.5% in the July 17 forecast to 1.0% in the Aug. 20 forecast to 1.2% in the Sept. 19 forecast, which returns it to the level of its March 20 forecast.
In particular, it said it expects GDP to exceed its previous forecast in the second and third quarters, while sinking below the previous forecast from the fourth quarter through the third quarter of 2026.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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