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Rising interest rates will result in a sharp drop in refinance demand in 2022, meaning a lot less business for mortgage bankers, according to the Mortgage Bankers Association’s just-released annual forecast. It predicts total origination volume will drop 33% to $2.59 trillion.

The average rate on the popular 30-year fixed loan will rise to 4%, a full percentage point higher than it is now, MBA economists say.

That will result in a 62% drop in refinance originations to just $860 billion. It deepens the anticipated 14% decline in 2021 to $2.26 trillion

“The economy and labor market rebounded in 2021, but overall growth fell short of expectations because of stubborn supply chain issues that fueled faster inflation, slowed consumer spending, and presented challenges in filling the record number of job openings available,” said Michael Fratantoni, chief economist at the MBA. “With inflation elevated and the unemployment rate dropping fast, the Federal Reserve will begin to taper its asset purchases by the end of this year and will raise short-term rates by the end of 2022.” 

Originations for the purpose of buying a home, however, are forecast to rise 9% to a record of $1.73 trillion in 2022.

Overall, this will mark a change from the record-high production profits of 2020, when interest rates fell to record lows and homebuyer demand soared due to the coronavirus pandemic. The drop will likely result in increased competition among lenders.

“Many lenders will rely more heavily on their servicing business to achieve financial goals,” said Marina Walsh, vice president of industry analysis at the MBA. “The servicing outlook is more complicated today, with the expiration of many COVID-19-related forbearances and the need to place borrowers into post-forbearance workouts.”

Walsh added that servicing costs may rise as servicers work to meet the needs and requirements of borrowers, investors and regulators.

The nation’s homebuilders aren’t seeing any relief from supply chain issues that have slowed construction recently, but high buyer demand appears to be making up for it.

Builder confidence in the single-family home construction market rose 4 points to 80 in October on the National Association of Home Builders/Wells Fargo Housing Market Index. That is still down from 85 in October 2020 and from the record high 90 in November of last year. Anything above 50 is considered positive.

“Although demand and home sales remain strong, builders continue to grapple with ongoing supply chain disruptions and labor shortages that are delaying completion times and putting upward pressure on building material and home prices,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida, in a release.

Of the index’s three components, current sales conditions rose 5 points to 87. Sales expectations in the next six months increased 3 points to 84 and buyer traffic climbed 4 points to 65.

The biggest concern for builders now is affordability, as they raise prices to meet the rising costs of land, labor and materials.

The median price of a newly built home sold in August was 20% higher than August of 2020, according to the U.S. Census. While some of that is the mix of homes selling — more on the high end of the market — it also reflects builder increases.

Some builders have actually slowed home sales due to construction hurdles, as they are concerned they won’t be able to deliver houses at a normal pace.

Homebuyers are turning more and more to new construction, as the supply of existing homes for sale continues to be both incredibly lean and pricey.

“Building material price increases and bottlenecks persist and interest rates are expected to rise in coming months as the Fed begins to taper its purchase of U.S. Treasuries and mortgage-backed debt,” said Robert Dietz, chief economist at the NAHB.

A forecast just released by the Mortgage Bankers Association predicts the average rate on the 30-year fixed mortgage will hit 4% by the end of 2022, up from around 3% now.

Regionally, looking at the three-month moving averages builder sentiment in the Midwest rose 1 point to 69. In the Northeast it was unchanged at 72. Both the South and West were also unchanged at 80 and 83, respectively.