2024 should bring 17% originations jump, rate cuts – but when?
Mortgage origination units will increase by 17% in 2024, equivalent to 700,000 more loans than last year. That’s the prediction by the Mortgage Bankers Association (MBA), which also envisions three interest rate cuts this year.
“We’re looking for an increase in ’24 and further increases in ’25 and ’26,” Mike Fratantoni, chief economist at the MBA, said in reference to bolstered volume expectations this year. The economist made the remarks during a recent discussion organized by Snapdocs.
What a difference a year makes: “Going from that 25-year low in units to north of five million the next couple of years,” Fratantoni said. He added the growth will emerge by virtue of both purchase and refinancing.
There will be rate cuts
Envisioned rate cuts will help spur volume growth, he suggested. “We’re looking for rates to drift down through the course of the year,” he said. “We’re looking for three rate cuts this year, and further ones in ’25 and ’26.”
And what of the treasury bond? “The 10-year Treasury was at 5% not that long ago,” he said. “Now it’s at 4%. Expect that to drop to 3.5%.”
As far as the mortgage rate: “The 30-year fixed mortgage rate, which was at 8%, is now at 6.75%. We think we’ll get down to 6% by the end of this year and drop below 6% by 2025.”
More brisk activity in the area of refinancing envisioned
Back to that upcoming refinance boom: “A 50% increase in refis - from almost nothing to a little bit more than that,” Fratantoni said as he pointed to colorful charts highlighting his economic alchemy. “We do think that with lower rates, there’s going to be a lot of demand for cash refinance even though there’s not going to be much need for rate and term refinance.”
Also known as a traditional or no cash-out refinance, a rate and term refi enables a borrower to change the interest rate and loan term without affecting the principal balance. Homeowners typically enter into such transactions to secure lower mortgage rates.
Refi opportunities emerge amid added finance stress
That growing ability to refinance comes at a time of rising prices for consumers in other areas apart from their homes. “The fact that you have more than $1 trillion in credit card debt balances, your typical auto loan now is $40,000 on a new car, student debt has restarted again – you have a lot of households that are under some stress.,” the economist said. “If they can tap into their home for home equity – and they have a lot of it – to manage the stress, I think you’ll see opportunities for debt consolidation, cash-out refinances, these next couple of years.”
Given the envisioned scenario, homeowners who secured historically low mortgage rates – from 2% to 4% offered in the midst of the COVID-19 pandemic – might be willing to let those mortgages go given the thinner margins once rates start to drop.
“And it’s not a foolish decision on their part,” Fratantoni noted. “If they’re looking at their portfolios in totality – not just the mortgage but these other liabilities – it can be a very sensible decision for them.”
Those releasing their collective grip on their coveted pandemic-era rates will help usher in market normalization, Fratantoni agreed. “More opportunities for everyone,” he said in encapsulating the aftermath.
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