Rates, inventory, labor, and hurricanes impacting mortgage market

Written By: Joel Palmer, Op-Ed Writer

The mortgage market was already expected to decline in 2017 because of rising mortgage rates.

Then homeowners collectively decided not to put their properties up for sale, tightening inventory.

Mortgage originations also took a hit because of a labor shortage that has curtailed home building.

And if that wasn’t enough pressure on the mortgage industry, three hurricanes damaged or destroyed millions of dollars in potential housing inventory.

It’s should be no surprise, then, that forecasts for 2018 continue to call for a significant drop in mortgage originations.

At a conference in Denver last week, the Mortgage Bankers Association said it expects mortgage originations to end this year at $1.69 trillion, which would be down from $2.05 trillion in 2016. MBA predicts volume to fall to $1.6 trillionin 2018.

Freddie Mac’s October Outlook, meanwhile, predicts that total originations would finish at about $1.8 trillion in 2017 before falling slightly to $1.69 trillion in 2018.

The drop in mortgage originations comes at a time when favorable economic indicators would suggest a stronger mortgage market. Freddie Mac, in fact, forecasts total home sales to grow from 6.01 million in 2016 to 6.13 million this year and to 6.3 million in 2018.  

But home sales are not rising enough to make up for the loss of refinance volume caused by rising mortgage rates. MBA anticipates average mortgage rates to be 4.6 percent in 2018, 5 percent in 2019 and 5.3 percent in 2020.

“We would expect sales to be increasing faster than they are,” MBA Chief Economist Mike Fratantoni said at last week’s MBA conference. “The 2017 sales numbers are coming in a little bit weaker than we forecast.”

Freddie Mac’s outlook said the already tight supply of homes was exacerbated by Hurricanes Harvey, Irma, and Maria, which struck Texas, Florida, and Puerto Rico, respectively, in September.

The report said that Harvey damaged or destroyed between $51 billion and $56 billion worth of real estate in Texas, while Irma affected $30 billion to $40 billion throughout Florida. In all, about 270,000 homes in the hurricane-affected areas were damaged or destoryed, including 15,500 in Houston alone.

“With many families in a need of relocation, we expect demand for housing to grow in nearby areas not affected by the hurricanes. If a significant number of buyers look to buy a house, then it is unlikely that there will be enough houses to keep prices steady, given that the housing market was already tight prior to the hurricane,” read the report.

“Texas and Florida together represent 24 percent of the total housing starts in the U.S. Housing units impacted by the hurricanes are a fraction of the total starts in Texas and Florida, so we do not expect a huge national impact. However, the hurricanes won’t help with tight inventories.”

Freddie also warns that rebuilding of the affected areas could be slow due to the tight labor market. 

Another impact that the September hurricanes will have on the mortgage industry, according to Freddie, is an increase in delinquencies. 

There are well over 4 million mortgage properties in the areas of Texas and Florida declared disaster areas. It’s estimated that delinquencies could rise 16 percent in these areas.

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.