Mortgage originations will surge 19% in 2024 as a recession will force rates down, MBA says

• Mortgage originations will jump next year, the Mortgage Bankers Association predicted.
• That's because a mild recession will prompt the Fed to ease interest rates, meaning lower mortgage rates.
• But home prices will still appreciate for the next three years due to low inventory.

Housing demand will rebound from this year's strained levels, after a mild recession pulls down today's high mortgage rates, the Mortgage Bankers Association predicted.

Mortgage originations, or the process leading to a homebuyer loan, are estimated to reach 5.2 million by loan count next year, according to MBA's housing market forecast released on Sunday. That's a 19% jump from the 4.4 million loans predicted for the entirety of 2023.

By another measure, 2024 origination volume will surge 19% to $1.94 trillion, against $1.64 trillion expected for this year.

The pick up will be thanks to dropping mortgage rates, which have hit highs not seen in over two decades with the 30-year fixed rate well above 7%. 

Mortgage rates will fall as tight Federal Reserve policy, deteriorating credit conditions, and eroding US savings spur on a mild recession in next year's first half, MBA said. 

In its outlook, this will slow job market growth, increasing unemployment from 3.8% to 5% by 2024's year-end. At the same time, inflation will gradually fall, eventually reaching the Fed's 2% target rate by mid-2025.

These factors will give the central bank leeway to lower interest rate levels over time, which will bring down elevated mortgage levels, MBA said. 

"Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024," MBA chief economist Mike Fratantoni said in a statement.

Not only will this incentivize homebuyers to return, it will help add housing supply, as current owners will be more willing to sell their home. Many have remained off the market this year, preferring the cheaper mortgage rates they currently hold. 

But despite this, housing inventory will remain tight enough for home prices to keep appreciating for the next three years, MBA reported. Even with lower mortgage rates, homebuyers can still expect high payments, scarce for-sale properties, and less credit availability.