Total mortgage origination volume is expected to reach $1.60 trillion in 2018, down from $1.69 trillion in 2017, according to the latest forecast from the Mortgage Bankers Association (MBA).
The decrease is entirely due to the anticipated drop-off in refinances resulting from higher mortgage rates. The MBA anticipates refinance originations will decrease by 28.3% in 2018, compared with this year, to approximately $430 billion.
However, purchase volume is forecast to increase 7.3% to $1.2 trillion.
For 2019, the MBA is forecasting total originations to rebound to $1.64 trillion, with purchase originations of $1.24 trillion and refinance originations of $395 billion.
“We are projecting that home purchase originations will increase at a faster clip in 2018, nearly double the rate that they increased in 2017,” says Michael Fratantoni, chief economist and senior vice president for research and industry technology for the MBA, in a statement. “The housing market has been hamstrung by insufficient supply, with inventories of homes remarkably low given the home price growth we have experienced. The job market remains strong, demographic trends are quite favorable, mortgage credit is becoming more available to qualified borrowers, and home prices should continue to rise. All the pieces are in place for stronger growth in 2018 and beyond.”
The MBA’s projection for overall economic growth is 2.0% for 2018, slowing slightly to 1.9% in 2019 and 1.8% in 2020.
“We still expect long run growth potential in the U.S. to be somewhat lower, as productivity gains have been persistently slow,” Fratantoni says. “Although inflation remains low, a tight job market is likely to increase inflationary pressures in the near term. We expect the Fed will raise rates in December 2017, three times in 2018 and twice in 2019. The Federal Reserve has begun reducing its holdings of Treasury securities and mortgage-backed securities, and this will put additional modest, upward pressure on mortgage rates. We expect that the 10-year Treasury rate will stay below three percent through the end of 2018 and 30-year mortgage rates will stay below five percent.”
The MBA forecasts that monthly job growth will average 125,000 per month in 2018, down from about 150,000 per month in 2017, and that the unemployment rate will decrease to 4.0% by the end of 2018.
In addition to the updated forward-looking forecast, MBA upwardly revised its estimate of originations for 2016 to $2.05 trillion from $1.89 trillion to reflect the most recent data reported in the 2016 Home Mortgage Disclosure Act (HMDA) data release.