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| Title: | Economy Will Continue to Slow, 2008 Originations Down 18% from 2007, According to Latest MBA Forecast | | Source: | MBA | | Date: | 10/17/2007 |
Washington, D.C. (October 17, 2007) —Economic growth will continue to slow through the rest of 2007 but should return to near normal growth during the 2nd half
of 2008 and into 2009, according to the latest economic forecast released today by the Mortgage Bankers Association. Total
originations should decline another 18 percent next year as both purchase and refi originations drop. Total originations will
drop an additional six percent in 2009 from 2008 as the 5-percent increase in purchase originations partially offset a projected
18 percent decline in refi originations.
“We have not yet seen fully the impact of the credit shock to the US and world economies, and the severity of that impact
will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle,
“ said Doug Duncan, MBA Chief economist and senior vice president of research and business development.
In his general session presentation of MBA’s 94th Annual Convention & Expo in Boston, Duncan said that “Among the other uncertainties
we face are the impact of sharply higher energy costs, the impact on inflation from higher import prices due to the falling
dollar, and the impact of uncertainty over the tax policies coming out of Washington. The underlying fundamentals of the
economy, however, should be strong enough to get us past this period so that economic growth should return to normal levels
by the second half of 2008.
“In terms of housing, we expect 2008 sales to be below 2007 levels until late 2008, but given the over supply of homes in
a number of markets, any significant increase in homebuilding is probably years off.
“The drag on GDP growth from the housing sector is being at least partially offset by strength from international trade.
During the last four quarters, residential investment in constant dollars fell by $97 billion, while net exports rose by $53
billion.
Strength from the external sector will surely continue, given robust growth abroad, a declining dollar, and the impact of
slower growth at home moderating the rise of imports.”
“If the funds rate is reduced another 25 basis points at the October policy meeting, that may be the last move needed to keep
the economy on a moderate growth track. Growth, however, seems likely to remain at or somewhat below the economy’s long-term
growth potential, obviating the need to the Fed to reverse course and raise interest rates next year.
“The rates on fixed-rate mortgages are now at 6.4 percent. We expect long-term rates to rise to 6.6 percent by the beginning
of 2008.
Following are the key points of the latest MBA forecast:
• We expect housing starts and home sales to reach bottom in the second and the third quarter of next year, respectively.
• Total existing home sales for 2007 will decline by about 12 percent from 2006 to 5.72 million units. Sales will decline
further by about ten percent in 2008 before picking up by five percent in 2009.
• New home sales will decline by 22 percent from 2006 to 819,000 units. We expect an additional decline of ten percent in
2008. For all of 2009, we expect new home sales to rise by about six percent.
• Home prices for new and existing homes are expected to decline this year, with median prices falling about two percent.
Prices should decline at a similar rate in 2008 before flattening out in 2009.
• Residential purchase mortgage originations will decline about 15 percent in 2007 to $1.18 trillion from $1.40 trillion in
2006. Given projected declines in sales and prices for all of 2008, purchase origination should fall by 15 percent to 1.00
trillion in 2008. We expect purchase originations to rise about five percent in 2009, as home sales and home prices pick
up.
• Refinance originations will also decline about 15 percent to $1.13 trillion in 2007 from $1.33 trillion in 2006. A significant
amount of loans have faced or will face their resets this year and next year. The tightening lending standards will significantly
curtail activity in the subprime segment of the market. We believe, however, that recent and future Federal Reserve actions
will help restore liquidity to financial markets, which will help support refi activity in the prime market in the coming
quarters. Nevertheless, as mortgage rates edge up modestly with the stronger economy and increased demand for funds in 2008
and 2009, refi activity will decline by about 22 percent in 2008 from 2007 and about 18 percent in 2009 from 2008.
• Total mortgage production will be down about nearly 15 percent to $2.31 trillion this year from $2.73 trillion in 2006.
Total originations should decline another 18 percent next year as both purchase and refi originations drop. We project that
total originations will drop an additional six percent in 2009 from 2008 as the 5-percent increase in purchase originations
partially offset a projected 18 percent decline in refi originations.
### The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry
that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the
association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand
homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and
fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety
of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies,
mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending
field. For additional information, visit MBA's Web site: www.mortgagebankers.org.
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