| Title: | MBA Forecast: Slow Economic Growth in 2008 Will Be Coupled With Lower Levels of Mortgage Originations in 2008 and 2009 |
| Source: | MBA |
| Date: | 1/14/2008 |
WASHINGTON, DC (January 14, 2008) — The Mortgage Bankers Association (MBA) projects that economic growth will continue to slow through the first half of 2008,
but expects economic activity will begin to pick up in the second half of 2008 and resume trend-like growth toward the end
of 2009. Total mortgage production will be down 16 percent to $1.96 trillion this year from a projected $2.34 trillion in
2007. Total originations should see a further drop of four percent in 2009 to $1.88 trillion.
“The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital.
Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans
on their balance sheets because the markets for securitized products are essentially closed,” said Doug Duncan, MBA’s Chief
Economist and Senior Vice President for Research and Business Development. “Fortunately, the banking system entered the current
credit crunch well capitalized, so the danger of a sharp and widespread contraction of credit availability does not seem imminent.
The recovery period in financial markets may take longer this time than it has in past financial crises, but a turn for the
better still appears to be a good bet later in the year.”
“Employment growth has slowed significantly from the pace early in 2007 with the December data reporting a decline in private
sector payrolls. High gasoline and food prices are siphoning off purchasing power. Home prices are falling and will likely
continue to decline,” said Duncan. “The case for avoiding recession, however, is still a plausible one. We expect housing
starts to hit bottom before the end of 2008. Since they have already fallen nearly 50 percent from peak levels, the drag on
GDP growth will diminish as the year goes on. Net exports, meanwhile, should continue to increase in response to relatively
strong growth abroad and the impact of past declines in the dollar on our competitive position in world markets.”
“Core inflation has also crept up a bit -- from a year-over year increase of 1.9 percent a few months ago to 2.2 percent in
November”, continued Duncan. “These recent increases in inflation may prove to be temporary. Oil prices may be stabilizing
at between $90 and $100 a barrel; food prices may continue to rise but not by more than the 5% year-over-year increase presently
underway; core inflation may subside a bit as the economy slows. Even if these assumptions do not prove valid and inflation
picks up a bit further, the Fed should be able to take countervailing actions later on to bring inflation back down to desired
levels without undue difficulty.”
Duncan continued, “Over the 12 months that ended in November, consumer spending adjusted for inflation rose 3.0 percent, exceeding
by a significant margin the 2.1 percent increase in real after-tax incomes. Our expectation is that consumer spending growth
next year will slow but spending should still increase by about 2 percent over the four quarters of next year.”
Duncan expects one more reduction in the fed funds rate to come at the late January Federal Open Market Committee meeting
(FOMC) and the Fed to say less about inflation in the next few FOMC statements and more about the need to do what is necessary
and possible to keep the economy away from the brink of recession.
“The 30-year fixed-rate mortgage yield should trend up only modestly higher over the second half of the year, reaching 6.2
percent by the fourth quarter and edging up just slightly through 2009. Thus, interest rates will still be quite low by historical
standards,” said Duncan.
Following are the key points of the latest MBA forecast:
• We expect housing starts and home sales to continue to trend down and reach bottom around the end of the 3rd quarter 2008.
• Total existing home sales for 2008 will decline by about 13 percent from 2007 to 4.94 million units. Sales will pick up
by about four percent in 2009.
• New home sales will decline by about 15 percent in 2008 from 2007 to 666,000 units. We expect sales to increase about seven
percent in 2009.
• Median home prices for new and existing homes are expected to decline this year, with nominal median prices falling about
two percent. Prices should increase by between one and two percent in 2009.
• Residential purchase mortgage originations will decline about 18 percent in 2008 to $955 billion from a projected $1.16
trillion in 2007. Given a recovery in sales and prices in 2009, purchase originations should be up by five percent to one
trillion in 2009.
• The yield on 10-year Treasuries -- the benchmark for fixed rate mortgage yields -- are projected to decline in the current
quarter as the Federal Reserve is expected to continue with its easing. However, we do not expect a large pickup in refi
activity as we would normally do for several reasons. First, lending standards have been tightened significantly. Second,
the spread between the 10-year Treasury yield and conforming mortgage rates as well as the spread between conforming mortgage
rates and jumbo rates has widened. Third, home prices have declined in many areas. These factors have combined to discourage
some refi activity, especially in areas with relatively high share of jumbo loans and falling home prices. Thus we project
that refinance originations will decline about 14 percent to $1.01 trillion in 2008 from a projected $1.17 trillion in 2007.
Refi activity will decline by another 13 percent to $883 billion in 2009 from 2008.
• Total mortgage production will be down 16 percent to $1.96 trillion this year from a projected $2.34 trillion in 2007.
This would mark the first time since 2000 that total mortgage originations fall below $2 trillion.
• Total originations should see another drop of four percent in 2009 to $1.88 trillion.
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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.