MBA projects record purchase originations for 2021

Yesterday, Mortgage Bankers Association presented its 2021 economic and mortgage market forecasts as part of its annual convention and expo. If the MBA’s projections are accurate, originators in the U.S. could be in for one hell of a year.

The MBA expects purchase originations to hit a record $1.54 trillion in 2021, 8.5 percent higher than the level projected for 2020, which would top the current all-time high of $1.51 trillion established in 2005.

Overall, mortgage originations are expected to reach $2.49 trillion next year. That would mean a significant drop from the $3.18 trillion the market is on track to hit this year, but it would still be the second-highest origination total the U.S. has seen in the past 15 years.

Mike Fratantoni, MBA’s chief economist and senior vice president for research and industry technology, said the Association’s forecast is predicated on a combination of factors: the availability of an effective COVID-19 vaccine, the hastened economic recovery that would follow, and another round of economic stimulus. That’s a lot of things that need to go right.

“The economy, labor market, and housing market have all seen meaningful rebounds since the onset of the pandemic, but there is still profound uncertainty. Additional waves of the virus could lead to further lockdowns and more job market instability,” Fratantoni said, adding that “another pandemic-related stimulus package would result in faster economic growth and additional support for the housing market, albeit with slightly more upward pressure on mortgage rates.”

Rates are predicted to experience a modest rise in 2021. MBA says the 30-year fixed-rate mortgage will close out the year at three percent before rising to 3.3 percent next year.

Those rising rates will likely put an end to the country’s refinance boom. After surging by an anticipated 70.9 percent in 2020, refinance activity in 2021 is projected to decrease by 46.3 percent. Fratantoni said refis could be particularly slow in the second half of 2021.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, touched on the uneven nature of the economic rebound witnessed over the past few months, explaining that much of the housing demand and application activity seen this year has come from borrowers in a position to seek higher-balance loans. It’s a trend Kan says may persist into 2021.

“The expectation is that credit availability will slowly improve across the spectrum as the economy does over the next year,” Kan said, “but some low-income borrowers and first-time buyers will likely face difficulties getting approved for a mortgage.”

The MBA’s presentation yesterday also included the group’s most recent economic forecast.

Fratantoni said that after falling 3.1 percent in 2020, real GDP growth should be “around three percent next year,” which should allow “the job market to improve, incomes to rise, and home sales to meaningfully increase.” GDP growth is expected to recede to 2.3 percent in 2022 and two percent in 2023.

Business investment is projected to increase by 2.3 percent in 2021 and by a further 3.4 percent and 3.7 percent, respectively, in 2022 and 2023. The unemployment rate, which MBA anticipates will end the year at 8.4 percent, is expected to fall to 6.8 percent next year, 5.4 percent in 2022, and 4.8 percent in 2023.