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Falling interest rates are pushing refinance mortgage originations higher than expected, but a credit union economist said the slowly deteriorating economy will keep a brake on overall loan growth.
The Mortgage Bankers Association raised its forecast for refinances this quarter as 30-year rates have fallen faster than it expected.
However, Curt Long, chief economist for America’s Credit Unions, told CU Times Thursday that growth will be slower for other types of loans.
Coming out of the Great Recession credit union lending was rising at rates in the 8%-to-11% range from 2013 through 2018, but except for a double-digit bump in 2022, loan growth has slowed. AmCU’s forecast made in early October forecast credit union loan portfolios will rise 4.5% this year and 5% next year.
Long said one reason for the slowdown was the increase in the federal funds rate, which impacts consumer loans.
“As a result of that, loan demand is not that strong right now,” Long said. “And I think also households are pretty nervous about the economic outlook too, and for that reason aren't that eager to take on a lot more debt.”
The direction of short-term rates will hinge on what the Federal Open Market Committee decides to do before its next meeting ends Dec. 10. The MBA is forecasting a 25 basis-point cut, but Long said he is not so sure since Powell’s cautionary comments Oct. 29 at the end of the previous meeting. Long said some FOMC members have also signaled skepticism on the need for a cut in December.
Long said Thursday’s job report from the Bureau of Labor Statistics (BLS) didn’t provide any news that will weigh heavily for or against a rate cut.
BLS showed a hefty gain of 119,000 non-farm jobs in September, but Long said the size of the gain was magnified by downward revisions for previous months. Also, he said the gain again leaned narrowly on health care and restaurants. He said about 80% of job gains over the last six months came from those two sectors, which account for just 20% of jobs.
The MBA’s Nov. 18 forecast released late Wednesday revised originations only for refinances in the fourth quarter. It revised fourth-quarter refinance up by 8.3% to $247 billion. The revised amount was 83% higher than a year earlier.
Its forecast for purchase originations remained $339 billion, up 7.3% from a year earlier.
The refinance revision caused a 3% upward revision in its forecast for total originations in the fourth quarter. The total is expected to be $586 billion, up 30% from last year’s fourth quarter.
Interest rates have been falling faster than the MBA expected.
Back in July the MBA expected the 30-year interest rates to fall to 6.7% by year’s end, but those projections have fallen each month and its Nov. 18 forecast expects it to be 6.3% by Dec. 31. The rate was 6.37% for the week ending Nov. 14.
Its forecasts for the past three months continue to expect rates will be 6.4% by the end of 2026.
For the year, the MBA now expects total originations to rise 22% to $2.05 trillion. Next year they are expected to rise 7% to $2.2 trillion.
Purchases are expected to rise 1.3% to $1.36 trillion this year and rise 8% to $1.46 trillion in 2026.
Refinances are expected to double to $694 billion this year and rise 6% to $737 billion in 2026.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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