Total mortgage originations will dip to $1.63 trillion in 2019, down from $1.64 trillion this year, according to the latest forecast from the Mortgage Bankers Association (MBA).
Purchase originations will reach $1.24 trillion – an increase of 4.2% compared with 2018 – however, this will be offset by a decrease in refinances, which will fall by 12.4% to $395 billion, the MBA announced during its 2018 Annual Convention and Expo in Washington, D.C.
In 2020, the MBA is forecasting purchase originations of $1.27 trillion and refinance originations of $410 billion, for a total of $1.68 trillion.
“The unemployment rate is at its lowest level in almost 50 years, resulting in faster wage growth and more confident homebuyers,” says Mike Fratantoni, chief economist and senior vice president for research and industry technology for the MBA, in a statement. “While the Federal Reserve is expected to increase short-term rates further, 30-year mortgage rates should rise only modestly from here. We are seeing some deceleration in the rate of home price growth, but believe this is a healthy pause for the market, as it will allow income growth to catch up to the recent run-up in home values.”
Fratantoni says housing demand should continue to grow, however, the pace of home sales will continue to be held back by lack of new supply.
He expects purchase originations will increase each year from 2019 to 2021. That pace should continue to increase beyond the forecast horizon, given the wave of millennial buyers beginning to hit the market.
“While the macroeconomic and housing market backdrops are, and should remain quite favorable, the mortgage industry continues to be challenged by the drop in origination volume, coupled with significant margin compression,” Fratantoni says. “Lenders of all types and sizes are seeing elevated costs, coupled with intensely competitive pricing, to capture more volume. This in turn is depressing revenues.
The MBA expects the Fed will raise rates again in December, and then three times in 2019, bringing the fed funds target to about 3%.
“We forecast for the 10-year Treasury rate to increase to about 3.4 percent and then level out, bringing 30-year mortgage rates to roughly 5.1 percent,” Fratantoni says.
Monthly job growth will average 120,000 in 2019, the MBA forecasts, down from the monthly gains of 200,000 seen this year.
“The unemployment rate will decrease to 3.5 percent by the end of 2019, which should continue to keep housing demand at a healthy level, ultimately leading to an increase in purchase originations,” Fratantoni says.
The MBA notes that it revised its estimate of originations for 2017 to $1.76 trillion from $1.71 trillion.