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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 66 November 2023 J O U R N A L 2024 ORIGINATION VOLUME FORECAST ON THE RISE L ooking into 2024, the Mortgage Bankers Association (MBA) has announced that it now predicts origination volume to total $1.95 trillion in 2024 compared to the $1.64 trillion volume that is expected to occur by the end of the year. Purchase originations are forecast to increase 11% to $1.47 trillion next year. By loan count, total mortgage origination volume is also expected to increase by 19%, to 5.2 million loans in 2024 from 4.4 million loans expected in 2023. The report was announced by Mike Fratantoni, Chief Economist and SVP for Research and Industry Technology; Joel Kan, VP, Deputy Chief Economist; and Marina Walsh, CMB, VP of Industry Analysis at the MBA's Annual Conven- tion & Expo. According to Fratantoni, the U.S. economy has been resilient throughout 2023, but MBA is forecasting that 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," Fratan- toni said. "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 Lending/Originations 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% to 5.0 % by the end of 2024. Inflation will gradually decline towards the Fed's 2% target by the middle of 2025," Fratantoni continued. Fratantoni further believes as the economy slows and inflation falls, long- term rates will decline from current levels which should push 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. MBA's baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025, as Treasury rates decline and as the spread narrows. Still, the MBA expects national home prices will grow over the next three years, as tight inventory props up price growth. an emphasized that first-time homebuy- ers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages; though there will still be challenges, as median purchase and interest payments remain high, for-sale inventory is scarce, partic- ularly 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 com- petitive the bidding process still is. Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months," Kan said. Walsh noted during her presentation that production losses persisted in 2023 and that it will likely continue through next spring. "Excess capacity continues to be a challenge for mortgage lenders, with low productivity levels and high expenses per loan," Walsh said. "Lenders have reduced their headcounts and gross expenses, but the record-low volume is a primary driver of these escalating per-loan costs."