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$1.67 Trillion in Purchase Originations Forecast for 2021

04.28.2021

If Q1 was any indication, the housing market is experiencing a great start to the new year, as the Mortgage Bankers Association (MBA) has forecast that purchase originations are on track to grow 16.4% to a new record of $1.67 trillion.

After last year's record $3.83 trillion in mortgage originations, MBA forecasts volume to fall 14% this year to $3.28 trillion, which would still be the third-highest total ever. Mortgage rates are expected to continue rising to around 3.7%, contributing to a further slowdown in refinance demand. Refinance originations are expected to fall by 33% to $1.62 trillion.

"The housing market is incredibly strong this year, with robust housing demand in nearly every part of the country, driven by the improving economy, households seeking more indoor and outdoor space, millennials reaching their prime homebuying years, and still low mortgage rates," said Mike Fratantoni, Chief Economist and Senior Vice President for Research and Industry Technology. "A lack of supply is the biggest hurdle to an even larger increase in home sales. The widening imbalance of supply and demand is driving up home-price growth and eroding affordability—especially for entry-level buyers."

In February, the MBA raised its estimate of annual real GDP growth in 2021 from 3.7% in January to 5.9% in February. According to Fratantoni, the American Rescue Plan and vaccine rollout will continue to provide a lift to the economy, households, and businesses through the summer. He expects economic growth to jump to 6.5% this year, a vast improvement from the pandemic-induced contraction of 2.4% in 2020.

“With a widely distributed vaccine reaching more of the country, we anticipate that many consumers will unleash pent-up demand fueled by the cash they have been saving over the past year,” said Fratantoni. “This is especially so in the service sector of the economy, which has been most severely impacted by the limited or even absence of in-person transactions."

Another step in the right direction is last week’s report of unemployment insurance claims, which for the week ending April 17, the advance figure for seasonally adjusted initial claims was at 547,000, a decrease of 39,000 from the previous week, marking the lowest level for initial claims since March 14, 2020 when claims were at 256,000.

"The economy will continue to recover, with rapid job growth, particularly in the hardest-hit, service sectors of the economy," said Fratantoni. "The job growth is certainly positive, but this environment sets the stage for higher mortgage rates and faster inflation. However, if housing inventory levels improve and help to keep affordability in check, home sales should remain strong into 2022."

by Eric Peck (via www.themreport.com)

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