The MBA [1] has released its Mortgage Finance Forecast [2] for October 2018. The forecast predicts that total mortgage originations in 2019 will decrease to $1.63 trillion from $1.64 trillion in 2018. Breaking down this total, the report expects $1.24 trillion in purchase mortgage originations—a drop of 4.2 percent from 2018—with refinance originations at $395 billion, or an annual decrease of 12.4 percent.
For 2020, however, the forecast predicts this trend will turn around, with a total of $1.68 billion in originations. Purchase originations for 2020 are expected to be $1.27 trillion, with refinance originations up to $410 billion.
"The unemployment rate is at its lowest level in almost 50 years, resulting in faster wage growth and more confident homebuyers,” said Mike Fratantoni, Chief Economist and SVP for Research and Industry Technology at MBA. “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 predicted that demand will sustain growth over the forecast horizon but that home sales rates will be constrained by a decline in new construction. He said that home purchase originations will increase from 2019 through 2021, and that this accelerated pace will continue beyond the forecast horizon as a new wave of millennials enters the housing market.
Fratantoni suggested the current decline in originations is due to elevated costs and competitive pricing, which in turn depresses revenues for lenders. He also stated that he believes the Fed will raise rates as promised three times before the end of 2019.
“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," he said, but added that the unemployment rate will only continue to decline.
"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," said Fratantoni.
The MBA also revised its estimate of originations for 2017, raising it to $1.76 trillion from $1.71 trillion. This adjustment reflects the most current data as reported in the 2017 Home Mortgage Disclosure Act (HMDA) data release.