Morning Report: The MBA revises its origination forecast

Vital Statistics:

S&P futures36102.6
Oil (WTI)41.730.31
10 year government bond yield 0.87%
30 year fixed rate mortgage 2.84%

Stocks are flattish despite positive vaccine news. Bonds and MBS are up.

Housing starts rose 14% YOY to 1.53MM in October. Building Permits were up 2.8% compared to a year ago. Starts fell in the Northeast, but were up pretty much everywhere else, especially the South. Meanwhile, the NAHB Homebuilder Sentiment Index hit another record high.

The MBA revised upward its 2020 and 2021 origination forecasts. As a general rule, the MBA is conservative on origination forecasts. 2020 is now expected to be $3.4 trillion and 2021 is now expected to come in at $2.6 trillion. Interestingly, the MBA still thinks refi activity in 2021 will be below $1 trillion. They expect the 30 year fixed rate mortgage to end 2020 at 2.9% and then rise to 3.4% by the end of 2021. As I discussed in yesterday’s note, the Fed has a real incentive to maintain mortgage rates as low as possible to support the economy. The last thing it needs is for home prices to fall as rates rise.

One thing market participants need to understand is that the bond market, at least as it relates to mortgage rates, is not a market. The Fed is engineering rates by purchasing mortgage backed securities. Forget about inflation expectations, trade flows, etc. They don’t matter. Here is what you need to know. The economy is weak. The Fed’s playbook is to support the economy by supporting asset prices. Residential Real estate is the biggest asset most people own. The Fed doesn’t want to risk weakening the economy during a pandemic by letting mortgage rates rise. For mortgage bankers, this couldn’t be a better set of circumstances, although those that retain servicing will probably have a bumpy road ahead.

Mortgage applications were flattish last week as purchases rose 4% and refis fell 2%. There wasn’t an adjustment for the Veterans Day holiday. “Mortgage market activity was mixed last week, despite the 30-year fixed rate mortgage staying below 3 percent,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The purchase market recovered from its recent weekly slump, with activity increasing 3 percent and climbing above year-ago levels for the 26th straight week. Housing demand remains supported by the ongoing recovery in the job market, and an increased appetite from households seeking more space because of the pandemic.”


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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