The Mortgage Bankers Association (MBA) has announced that total mortgage origination volume is expected to increase to $2.3 trillion in 2025 from the $1.79 trillion expected in 2024.
Purchase originations are forecast to increase 13% to $1.46 trillion next year. By loan count, total mortgage origination volume is expected to increase by 28% to 6.5 million loans in 2025 from the 5.1 million loans expected in 2024.
According to Mike Fratantoni, MBA’s Chief Economist and SVP of Research and Business Development, the U.S. economy has been stronger than expected this year, but MBA is forecasting a slowdown in economic growth and additional incremental increases in the unemployment rate in 2025.
“Monetary policy has turned the corner with the first rate cut in September 2024. The expectation of further rate cuts has already been baked into mortgage rates, and we expect mortgage rates are likely to remain within a narrow range around 6% for the foreseeable future,” said Fratantoni. “We are bullish about the spring 2025 housing market. Mortgage rates at this level should support homebuyer demand and gradually reduce the lock-in effect, thereby increasing the inventory of existing homes and supporting higher purchase origination volume in 2025.”
Fed Actions May Dictate Housing Direction
According to MBA research, the risk of growing budget deficits will keep longer term rates from falling further, even as the Fed cuts short-term rates. The spread between mortgage and Treasury rates, at around 240 basis points currently, remains roughly half a percentage point wider than historical averages. MBA expects additional narrowing of this spread in 2025 as investors reallocate out of cash and into longer-term assets.
Latest statistics from the U.S. Department of Labor (DOL) found that for the week ending October 19, the advance figure for seasonally adjusted initial unemployment claims was 227,000, a decrease of 15,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate was 1.3% for the week ending October 12, an increase of just 0.1 percentage point from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending October 12 was 1,897,000, an increase of 28,000 from the previous week’s revised level—marking the highest level for insured unemployment since November 13, 2021, when it was 1,974,000.
“The job market will likely slow somewhat as we enter 2025, with fewer jobs added and the unemployment rate increasing from its current rate of 4.1% to 4.7% by the end of 2025,” Fratantoni added. “Inflation will gradually decline towards the Fed’s two percent target by the end of 2025.”
The overall economic market awaits the next move by the Federal Reserve on their decision to hold, cut or raise rates which will be determined at the conclusion of the next Federal Open Market Committee (FOMC) meeting on Thursday, November 7. In mid-September, for the first time in four years, the Federal Reserve cut its benchmark interest rate, a move designed to force lower borrowing costs for consumers and businesses. The rate cut of a full half-point to a new range of 4.75% to 5.0% was announced by Federal Reserve Chair Jerome H. Powell at the conclusion of the FOMC meeting, after the Fed had kept rates at an all-time 23-year high for more than a year.
The Great Rate Race
MBA’s baseline forecast is for mortgage rates to end 2025 at 5.9% and remain close to that level for the forecast horizon. Joel Kan, MBA’s Deputy Chief Economist, emphasized that demographics would continue to support housing demand, as younger age cohorts are either in or entering prime homeownership ages. However, affordability challenges remain, as median purchase mortgage payments are still elevated and emerging cost burdens from rising homeowners’ insurance premiums and rising property taxes are adding to the cost of homeownership.
“There has been growth in purchase applications for both new and existing homes, with application levels above last year’s pace,” noted Kan. “Mortgage rates are lower than they were a year ago, and for-sale inventory has started to grow somewhat, which is helping to ease price pressures in many markets. It is also encouraging that an increasing share of first-time homebuyers have turned to newly built homes as an option, given the lack of previously owned starter homes on the market. These factors should support a bigger gain in purchase activity early next year, especially if mortgage rates remain near these levels or decline further.”
Freddie Mac reports in its latest Primary Mortgage Market Survey (PMMS) for the week ending October 24, 2024 that the 30-year fixed-rate mortgage (FRM) averaged 6.54%, up from the previous week’s total of 6.44%, but down nearly a full percentage point year-over year when the FRM came in at 7.79%.
Gains in Production Profitability
Marina Walsh, CMB, MBA’s VP of Industry Analysis, noted that there were positive signs for production profitability starting in Q2 of 2024, after eight consecutive quarters of net production losses.
“Production volume began to pick-up in the second quarter which led to a reduction in per-loan costs,” said Walsh. “With more volume forecast in 2025 and 2026, lenders may be poised to increase their head counts after two of the most difficult years in the mortgage business, but cost escalation remains an ongoing concern.”
Walsh continued, “Mortgage servicing has enabled many lenders to stay profitable overall. We may see delinquencies rise modestly due to a slowing economy, natural disasters and payment shock from increasing property taxes, insurance and HOA and condo fees. Fortunately, between accumulated equity that stands at over $35 trillion and loan workouts, homeowners have more flexibility to resolve hardships.”
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