Even though mortgage rates have
But those higher rates, which could reach 5% in 2023, will not deter record purchase mortgage activity through the next three years.
It's not just the improving U.S. economy and the growing budget deficits that will be pushing rates up, but also
He expects inflation to go "well above 3% over the next several months, a lot of that coming from supply chain issues moving across the economy [along with] various constraints that businesses are running into."
One such constraint is
The 10-year Treasury rate will move up to 2% by year-end, he predicted. On April 21, it was at 1.56%. That will likely drive the 30-year FRM to 3.7% this year, and above 4% in 2022.
The latest MBA mortgage application data has
"There will still be very low mortgage rates to offer to your borrowers," Fratantoni said. "It's going to have a pretty tremendous impact on the incentive for anyone to refinance, but we don't think it's going to move high enough to have an impact on those purchase borrowers."
The spread between the 10-year Treasury and 30-year FRM is normally about 180 basis points. But last year that got up to over 260 bps "and stayed extraordinarily wide for most of the rest of 2020," Fratantoni said. "But as refis began to weaken and mortgage rates drifted up a little bit, that spread has come in quickly," dropping by 150 bps from that high point last year.
"That is going to be reflected in much tighter margins, much lower revenues as we begin to look at first quarter and second quarter data," he said.
Because of the continued narrowing of the spread since late in the fourth quarter of 2020, there has been a "general drop off" in mortgage banking revenue, although final numbers for the first quarter are still being gathered, said Marina Walsh, vice president, industry analysis.
The spread as of April 21 was approximately 158 basis points, according to data from Black Knight.
Lenders need to watch for that possibility that the Federal Reserve slows its asset purchases, which would impact rates.
Federal Reserve Chairman Jay Powell has "been very careful in communicating their intentions and in sort of allaying some of these fears, but we saw some volatility earlier last month as there was some talk of tapering these asset purchases," said Joel Kan, the MBA's associate vice president, economic and industry forecasting.
Back in 2013, during the "
Still, the MBA is calling for $3.28 trillion in originations in 2021, up from the month-ago forecast of $3.18 trillion. Even though the estimate is lower than last year's record $3.83 trillion, it would still be the third-best year ever.
This change is driven by a stronger-than-expected refinance business that was pushed over from the fourth quarter last year into the first and second quarters of this year.
But the purchase projections remained unchanged from March and the organization is still expecting three consecutive years of record volume for this loan type.
Total volume for each of the next two years is predicted in the range of $2.3 trillion. Purchases are expected to go from $1.67 trillion this year to $1.74 trillion in 2022 and $1.78 trillion in 2023.
The MBA is more conservative than either Fannie Mae or Freddie Mac in its estimates. Freddie Mac's
Fannie Mae's