Is consumer stress cooling inflation? How likely is a recession? When will interest rates reach 5.5%? MBA Chief Economist Mike Fratantoni weighs in on these topics and more in this NFM TV exclusive interview.

Full Transcript is Below:

– You’re beginning to see some signs of consumer stress, and if you listen to companies in their Q2 earnings calls, particularly some of the retailers, they’re beginning to talk about that. People are not spending the way they used to. We still think the US economy is likely to slow as we get to the end of this year and probably be in a recession first half of ’24.

– What’s that gonna do to rates, Mike?

– Once we begin to see some of these weaker economic data come in, you’ve seen 10-year yields drop, you’ve also seen expectations of the Fed holding at the current level really increase. So we think the Fed’s done. We think they’re gonna hold at the current level. We think they’ll begin cutting probably end of the first quarter next year, and that means longer term rates will drift down. So we have the 30-year mortgage rate ending this year a little above six, low fives by the end of ’24.

– Looking at a chart right now, index of leading economic indicators going back to the ’70s. Every time it’s crossed that red line right there in the middle, it has led to a recession. And I think that probably has a lot to do with your forecast, Mike. I mean, what percentage would you put on a recession being forthcoming?

– I’d say, you know, 60%, 65%, so likely. But I think whether it’s a sort of died-in-the-wall recession or just certainly a slowdown from where we are today, either way, that’s gonna be putting some downward pressure on rates. 10-year treasuries at 4.1 today, we see it getting to 3.6 by the end of the year.

– All right, so how are we gonna end up the year, Mike, in terms of originations and what are you forecasting next year?

– So ’23, looking for 1.7 trillion. That’s down about 26% from our estimate for ’22. It’s a bigger drop, about 1/3 in terms of units because average loan size has continued to be very, very large compared to prior years. For ’24, we’re looking for an increase up to about 2 trillion, almost all of that increase coming on the purchase side. The good news, there’s always good news somewhere, right? The good news we’re seeing in the housing market today is that home prices haven’t dropped. You know, we were more optimistic than most that home prices weren’t gonna drop far. It turns out they’re actually gonna increase this year. So for a current owner, they’re continuing to build equity. Mortgage performance is astonishingly strong. Delinquency rate’s the lowest it’s ever been. So servicing books look really, really very, very strong.

– Crystal ball time, Mike. Percentage chance that rates hit 6% fixed by the end of the year.

– Yeah, 25%.

– Interest rates will reach the 5.5% range sometime, anytime in 2024.

– Pretty high number. 70%, 75% would be my thinking. That 5.5%’s important too. At that level borrowers all of a sudden get very, very interested on the purchase side. So if I’m right and we get that 5.5% level, it’s gonna be a much stronger market than we’ve had certainly over the last 18 months.

– Well, you’re a valuable voice, and believe it or not, Mike, 6% by the end of the year if that were to happen, that is a relief. That’s a huge relief from where we are right now. So you have brought a glimmer of hope. You always do. It’s always wonderful to see you. Really appreciate the relationship we have with you. And I know all the IMBs out there do. Mike Fratantoni, Chief Economist of the MBA. Great to see you again. Really appreciate your time. Thanks so much.

– All right, thanks, Greg.

– All right, we’ll see you again soon. I’m Greg Sher from NFM TV. We will see you again next time.