The Mortgage Bankers Association (MBA) is forecasting that mortgage purchase originations in 2016 will rise to $905 billion, an increase of 10% compared with this year.
Refinance originations, however, are predicted to decrease by one-third to total about $415 billion.
Thus, total mortgage originations will reach $1.32 trillion – down from $1.45 trillion this year.
For 2017, the MBA is forecasting purchase originations will reach $978 billion and refinance originations will reach $331 billion for a total of $1.31 trillion.
In a statement, Michael Fratantoni, chief economist and senior vice president for research and industry technology for the MBA, says that ‘steadily rising demand and improvements in the supply of homes for sale and under construction’ will help boost purchase originations next year.
‘Despite bumps in the road from energy and export sectors, the job market is near full employment, with other measures of employment under-utilization continuing to improve,’ Fratantoni says. ‘We are forecasting that strong household formation, improving wages and a more liquid housing market will drive home sales and purchase originations in the coming years.’
The MBA is forecasting economic growth of 2.3% in 2016 and 2017.
‘The housing sector will contribute more to the economy than it has in recent years,’ Fratantoni says. ‘We are forecasting a 17 percent increase in single-family starts in 2016 and a further increase of 15 percent in 2017. Weaker growth abroad will mean fewer U.S. exports, which will be a drag on growth over the next couple of years. Recurring flights to quality, a demand for safe assets from investors abroad, will keep longer-term rates lower than the domestic growth environment would warrant.’
With regard to fixed mortgage rates, the MBA forecasts that they will remain below 5% in 2016 – even if the Fed moves to raise short term interest rates.
‘We expect that the 10-Year Treasury rate will stay below three percent through the end of 2016,’ Fratantoni adds.
‘Refinance activity will continue to decline as there are few remaining households that can benefit from an interest rate reduction and because rates will gradually begin to rise from historic lows in the coming years,’ he says. ‘Home equity products may see an increase in demand as home prices continue to increase at a decelerating rate.’