The Mortgage Bankers Association is forecasting mortgage origination volume to increase to $1.95 trillion in 2024 from the $1.64 trillion expected by the end of this year.

Total loans are expected to grow 19%, to 5.2 million loans in 2024 from 4.4 million loans expected by the end of this year. The expected 2023 figure is the lowest since 2002, resulting in net production losses for many lenders.

Rates Tell the Story

Any growth or shrinkage of the mortgage market in 2024 will be tied closely to any movement in interest rates.

The good news is that interest rate increases are likely at or near an end. The bad news is that no immediate decreases in rates are expected.

“Absent a stark turn in what I see in the data and hear from contacts, both in one-on-one conversations and in forums like this, I believe that we are at the point where we can hold rates where they are,” Philadelphia Fed President Patrick Harker said in a speech to the Delaware Chamber of Commerce in mid-October, adding that the views were his own, not that of the Fed.

According to Mike Fratantoni, MBA chief economist, the U.S. economy has been resilient throughout 2023, but the combination of higher interest rates, tighter credit conditions, and a depletion of pandemic-era household savings will lead to a mild recession in the first half of 2024.

“Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023,” said Fratantoni. “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected. Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024.

“The job market will likely slow as we enter 2024, with fewer jobs added and the unemployment rate increasing from its current rate of 3.8 percent to 5.0 percent by the end of 2024. Inflation will gradually decline towards the Fed’s 2 percent target by the middle of 2025,” Fratantoni continued.

According to Fratantoni, as the economy slows and inflation moves lower, longer-term rates will decline from current levels, helping to bring mortgage rates lower. However, the spread between mortgage and Treasury rates remains roughly 120 basis points wider than typical, due to a combination of factors.

Home Price Increase to Continue

MBA expects national home prices will grow over the next three years, as tight inventory supports price growth. Kan emphasized that first-time homebuyers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages. There will still be challenges, as median purchase and interest payments remain high, for-sale inventory is scarce, particularly for entry-level homes, and credit availability is low.

“New home sales continue to be stronger than existing-home sales, as buyers increasingly turn to newly constructed homes given the dearth of existing home listings and how competitive the bidding process still is. Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months,” said Joel Kan, MBA vice president and chief deputy economist.

Impact on Mortgage Industry Employment

Excess capacity continues to be a challenge for mortgage lenders, resulting in low productivity levels and high expenses per loan. Lenders have reduced their headcounts and gross expenses, with per-loan costs declining in the second quarter of 2023 after almost three years of increases, based on data from the MBA’s Quarterly Performance Report. However, the record-low volume has been a primary driver of these escalating per-loan costs over the past couple of years.

Based on MBA analysis of employment data from the BLS, CSBS, and QPR, the magnitude of the peak to trough drop in origination volume is estimated to result in a 30 percent decrease in mortgage employment for capacity to “right size.” 

Conclusion

With employment tight, even though mortgage growth is expected, mortgage lenders need to outsource those parts of the businesses that aren’t part of their core competencies in order to build relationships with potential mortgage applicants and provide them with the best product for their needs.