Mortgage bankers forecast a 5.4% decline in mortgage rates by the end of 2023. A year ago, they projected 4% so far, but now we are at 7%. Wishful thinking by crushed mortgage lenders?

This increasing inflation will surprise many more.

By wolf richter For wolf street,

At the Mortgage Bankers Association Annual Convention & Expo in Nashville on Sunday, MBA chief economist Mike Francantoni predicted that by the end of 2023, the average 30-year fixed mortgage rate will drop to 5.4%. And it made some headlines in the news.

in your regular period forecastThe MBA predicted the same: Mortgage rates would drop to 5.4% by the end of 2023. They will keep falling for the rest of the year until they reach 5.4% by the end of 2023.

But wait a minute… exactly one year ago in October 2021, the MBA prediction That the average 30-year fixed mortgage rate will be 4% by the fourth quarter of 2022, which is now. And mortgage rates are 7% right now.

It was and remains inconceivable to the mortgage industry that mortgage rates could actually go back to the old normal before QE. And the wishful thinking begins.

Along with many others, the MBA is predicting a recession in the first half of next year, or at least the good folks out there are expecting a recession until then, because they’re hoping the recession will bring down mortgage rates. , because the rise in mortgage rates this year has crushed and battered the business of mortgage bankers.

The mortgage industry makes its revenue from writing mortgages and then selling mortgages to Fannie Mae, Freddie Mac, and other financial institutions who then securitize the mortgages in MBS. And those revenues have collapsed.

There have been massive layoffs among mortgage lenders, some large lenders are downsizing, and some smaller ones have already closed or filed for bankruptcy. Shares of the largest mortgage lenders have declined from their highs by 79% (United Wholesale Mortgage), 85% (Rocket Companies, formerly Quicken Loans, the #1 mortgage lender in the US), and 96% (LoanDepot). and they’re all painted in my broken stock, Read on for more on the plight of this industry mortgage lender crisis,

Mortgage refinancing business has plunged 85% from a year earlier, the lowest level since 2000, according to mortgage application data from MBA, as hardly anyone is refinancing a 3% mortgage into a 7% mortgage. Quit, cash out, and then sell the house as quickly as possible.

And the business of writing mortgages to buy homes has plummeted 35% from its glory days a year ago:

So praying for a recession, and hoping that the recession will cause the Fed to cut interest rates and end this awful brutal QT, and start buying MBS and lowering mortgage rates again QE, while the economy is driving down inflation, is the logical thing to pray for if your industry is battered by falling revenues.

“The opposite of [recession] Potentially for the industry, that’s what’s likely to bring rates down a bit,” Fratantoni said, as reported market observation,

“Mortgage rates will decline as the global economy slows, hitting 5.4% by the end of 2023,” said a slide in his presentation.

The average 30-year fixed mortgage rate is 7.29% today, according to daily measurements by Mortgage News Daily. Weekly Remedy from Freddie Mac and Last Week’s MBA rose to 6.94%, double the rate from a year ago,

“We stick to our view that this is a spike right now, driven by financial-market chaos, increased levels of market volatility and the global recession we are about to experience, with the US likely to trigger a recession. Pull this number,” Fratantoni said.

Forget about this rampant inflation to save the revenue and profits of this industry?

According to MBA, a 1.6 percentage point drop in mortgage rates will drop from about 7% now to 5.4% by the end of 2023.

But a year ago, the MBA let its wishful thinking cloud its forecast. At that point, inflation was already on the rise, and the CPI had blown through the 6% line and was shooting straight up, and the Fed had its infamous pivot where it started taking inflation seriously. And the MBA still projects mortgage rates at 4% for Q4 2022. Because the reality would have been too painful to bear.

And this inflation has surprised many. Inflation is coming down in some goods, but inflation is now rising in services, where it is much more stable than in goods and much more difficult to remove, and services make up about two-thirds of what consumers spend. The CPI for services rose for the 13th month in a row, up 0.7% in August to September and 7.4% year-on-year, worst growth since 1982,

In this environment of rising inflation, any forecaster will be surprised. This inflation has thrown up a lot of nasty surprises over the past 20 months, and there are likely to be many more to come. And mortgage rates don’t exist in their own universe without inflation.

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