Steady rates and rising demand may drive lender profitability after a challenging period
The Mortgage Bankers Association (MBA) has projected a promising recovery in mortgage origination volume in 2025, after two of the most turbulent years in the mortgage market.
Leaders at MBA forecast total mortgage originations climbing to $2.3 trillion next year, up from an expected $1.79 trillion in 2024. That’s 13% growth in purchase originations, reaching $1.46 trillion, and an increase in loan volume by 28% to 6.5 million loans in 2025.
According to MBA chief economist Mike Fratantoni, the spring 2025 housing market would be well-supported by rising homebuyer demand and stable mortgage rates, which have likely “turned a corner” after the Fed’s first rate cut in September.
“The expectation of further rate cuts has already been baked into mortgage rates, and we expect mortgage rates are likely to remain within a narrow range around 6% for the foreseeable future,” Fratantoni said at MBA’s 2024 Annual Convention & Expo.
He noted that after the first interest rate cut in September 2024, MBA expects mortgage rates to remain around 6%, potentially dropping to 5.9% by the end of 2025.
“We are bullish about the spring 2025 housing market,” Fratantoni added. “Mortgage rates at this level should support homebuyer demand and gradually reduce the lock-in effect, thereby increasing the inventory of existing homes and supporting higher purchase origination volume in 2025.”
MBA’s outlook aligned with a potentially cooling job market, where slower job growth and a modest rise in unemployment are anticipated. While unemployment could rise to 4.7% by year-end 2025, Fratantoni is optimistic about broader economic stability, with inflation expected to trend down towards the Fed’s 2% target by the end of next year.
Fratantoni also explained that budget deficits would likely keep long-term rates from declining further, but he expects the spread between mortgage and Treasury rates, currently at around 240 basis points, to narrow slightly in the coming year.
Younger buyers boost demand
With younger generations stepping into prime homebuying years, housing demand has demographic tailwinds behind it, according to MBA deputy chief economist Joel Kan. But affordability challenges remain, as mortgage payments, property taxes, and homeowners’ insurance continue to stretch budgets.
“There has been growth in purchase applications for both new and existing homes, with application levels above last year’s pace. Mortgage rates are lower than they were a year ago, and for-sale inventory has started to grow somewhat, which is helping to ease price pressures in many markets.
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“It is also encouraging that an increasing share of first-time homebuyers have turned to newly built homes as an option, given the lack of previously owned starter homes on the market. These factors should support a bigger gain in purchase activity early next year, especially if mortgage rates remain near these levels or decline further,” Kan said.
Lenders prepare for growth
Lender profits, which took a hit over the past two years, showed positive signs in mid-2024.
Production volume began picking up in the second quarter after eight consecutive quarters of net production losses, leading to lower per-loan costs, according to Marina Walsh, vice president of industry analysis at MBA.
“With more volume forecast in 2025 and 2026, lenders may be poised to increase their headcounts after two of the most difficult years in the mortgage business,” Walsh said, though she cautioned that rising operational costs remained a concern.
Mortgage servicing has been a lifeline for lenders navigating leaner times, helping many stay in the black.
“Mortgage servicing has enabled many lenders to stay profitable overall. We may see delinquencies rise modestly due to a slowing economy, natural disasters and payment shock from increasing property taxes, insurance and HOA and condo fees,” Walsh said in the report. “Fortunately, between accumulated equity that stands at over $35 trillion and loan workouts, homeowners have more flexibility to resolve hardships.”
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