High home prices are expected to drive a record $1.72 trillion in purchase mortgage originations in 2022, even though rising mortgage rates could put a dent in sales of existing homes, according to the Mortgage Bankers Association.

High home prices are expected to drive a record $1.72 trillion in purchase mortgage originations this year, even though rising mortgage rates could put a slight dent in sales of existing homes, according to a forecast released Wednesday by the Mortgage Bankers Association.

“As for-sale housing inventory remains low, and home-price appreciation is elevated, higher mortgage rates have started to more significantly impact affordability,” MBA forecasters said. “Data from our Weekly Applications Survey has shown lower than expected purchase activity for this time of the year. As a result, we lowered our forecast for new and existing home sales for the forecast period, with existing home sales now expected to slightly decline in 2022.”

Growth in new home sales could make up for drop in sales of existing homes

Source: April, 2022 Mortgage Bankers Association forecast.

MBA forecasters expect sales of existing homes to fall by less than 1 percent in 2022, to 6.103 million. But a projected 7 percent increase in new home sales, to 822,000, should more than make up the difference.

“A healthy job market, and demographic drivers such as a large cohort of younger home buyers, are still supportive of housing demand, but that is being restrained by low inventory and affordability challenges,” MBA forecasters said.

Record purchase loan volume projected for next three years

Source: April, 2022 Mortgage Bankers Association forecast.

With the median price of an existing home expected to increase by 6 percent this year, to $365,100, MBA forecasters expect lenders will grow 2022 purchase loan originations by 4 percent, to a new all-time high of $1.72 trillion. But with higher mortgage rates projected to curtail refinancing by 64 percent, total 2022 mortgage volume is expected to drop by 35 percent, to $2.58 trillion.

While purchase loans are expected to continue growing and setting new records in 2023 and 2024, MBA forecasters don’t see refinancing rebounding until 2024.

Mortgage rates expected to flatten this year and ease in 2023

Source: April, 2022 Mortgage Bankers Association forecast.

MBA forecasters sees rates on 30-year fixed-rate mortgages finishing the year at 4.8 percent, up from 3.1 percent during the final three months of 2021. But the MBA then expects mortgage rates to decline gradually to 4.6 percent by the fourth quarter of 2023, and 4.3 percent by the end of 2024, as spreads between 10-year Treasury yields and mortgages return closer to historical norms.

“Given that we are past full employment and with inflation running over 8 percent annually, our expectation is that the Federal Reserve will continue with rapid rate hikes this year, and for the Federal funds rate to reach a range of 2.25 percent to 2.5 percent by the end of 2022,” MBA forecasters said. “We expect the rate hikes to continue through mid-2023.”

“Additionally, the Fed will be announcing plans to reduce the size of their Treasury and (mortgage-backed securities) holdings at their upcoming meeting in May, quickly ramping up to reductions of $95 billion per month,” MBA forecasters said. “This will add additional volatility to the mortgage market and will be another factor keeping mortgage rates elevated.”

While the MBA characterized its latest forecast as a “special release” to keep up with the changing market landscape, the Optimal Blue Mortgage Market Indices show rates on 30-year fixed-rate conforming mortgages surged through the 5 percent threshold on Wednesday, April 6, and continue to rise.

Mortgage rates break 5 percent threshold

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Email Matt Carter

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