The United States added 4.8 million renters in the past six years while losing 1.7 million owner households as the dynamics of the real estate space changed in the wake of the 2008 financial meltdown, according to the Mortgage Bankers Association. The market experienced additional changes in the first nine months of 2012, creating unexpected outcomes in the housing finance sector, prompting the MBA to alter its forecast for 2012.
In brief, the MBA revised its estimate for 2012 mortgage originations to $1.7 trillion, up from $1.4 trillion a year earlier. Still, the trade group predicts total originations will taper off to $1.3 trillion in 2013, eventually hitting $1.1 trillion in 2014. However, mortgage rates are expected to hover below 4% through the mid-part of next year.
The MBA expects gross domestic product will inch up from 1.6% in 2012 to 2% in 2013. Meanwhile, the forecast suggests existing home sales will increase from 4.6 million in 2012 to approximately 4.78 million next year.
Still, economic growth is contingent on government tax policies and at least a temporary avoidance of the fiscal cliff in early 2013.
“The tax increase in particular would be devastating to economic growth,” said MBA chief economist Jay Brinkmann. “We believe that the entire package of tax increases and spending cuts, if left unaltered, would cut 3.5 to 4 percentage points from our growth forecast.”
Another outlier is the final definition of the qualified mortgage rule from the Consumer Financial Protection Bureau, which will define what type of mortgage qualifies as safe from repurchase risk in cases of default. It’s unknown whether the final rule from CFPB, which is due out in January, will contain a safe harbor provision to protect lenders from buy back risk if they follow the guidelines.
These forecasts are based on the idea that QM comes in with a safe harbor and legislatures get past the fiscal cliff without dramatic spending and tax changes, said Mike Fratantoni, the MBA vice president of research and economics.
If the nation moves past the QM rule and the fiscal cliff without the introduction of new risks, the MBA expects moderate economic growth and an uptick in home prices annually from roughly 1.2% in 2012 to 3.5% in 2013.