The Mortgage Bankers Association (MBA) announced today at its 2019 Annual Convention and Expo in Austin, Texas, that purchase originations are expected to increase 1.6 percent to $1.29 trillion in 2020. After a surge in activity in 2019, MBA anticipates refinance originations will slow next year, decreasing by 24.5 percent to $599 billion.

MBA forecasts total mortgage originations will come in around $2.06 trillion this year – the best since 2007 ($2.31 trillion) – before likely decreasing to around $1.89 trillion in 2020. In 2021, MBA expects purchase originations to total around $1.33 trillion, and refinance originations to reach $432 billion ($1.74 trillion total).

Mike Fratantoni, MBA’s Chief Economist and Senior Vice President for Research and Industry Technology, says geopolitical uncertainty and a slowdown in the global economy combined to be the driving force behind this year’s increased financial market volatility and drop in interest rates. He expects these headwinds to continue, which will lead to slower economic growth in the United States next year.

“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook. These lower rates will in turn support both purchase and refinance origination volume in 2020,” said Fratantoni. “Lower-than-expected mortgage rates gave the refinance market a significant boost this year, resulting in it being the strongest year of volume since 2016. Given the capacity constraints in the industry, some of this refinance activity will spill into the first half of next year.”

After multiple years of home-price growth above wage gains, several markets in 2019 saw a slight slowdown in price appreciation. Fratantoni expects to see further deceleration in the next few years, as additional housing supply comes on the market.

“Moderating price growth is healthy, as it allows household incomes to catch up with home values. This improvement in affordability will lead to more home sales – especially given the rise in household formation and growing demand from first-time homebuyers,” said Fratantoni.

For the mortgage industry, Fratantoni believes that if refinance volume does wane, as he expects in the second half of 2020, the margin pressures many mortgage companies faced in 2018 may reappear.

“The industry continues to be challenged by elevated costs, and as we saw in 2018, the mortgage market is quite competitive. Revenues fall when lenders are chasing fewer loans,” said Fratantoni.

On the monetary policy front, Fratantoni expects the Federal Reserve will cut rates one more time before the end of the year, and then hold at that level until the economy resumes growth at a faster pace. He anticipates that the 10-year Treasury rate will increase gradually to around 1.9 percent next year, which will cause the 30-year fixed-rate mortgage rate to rise to around 4 percent.

“The health of the labor market plays a significant role in the outlook for housing. Although job growth is expected to slow along with the economy, overall market conditions look decent next year. Low mortgage rates and millennial buyer demand will be the primary reasons for a slight increase in purchase activity in 2020,” said Fratantoni.

MBA revised its estimate of originations for 2018 to $1.68 trillion from $1.64 trillion, to reflect the most recent data reported in the 2018 Home Mortgage Disclosure Act (HMDA) data release. You can view MBA’s updated Mortgage Finance Forecast and Economic Forecast here.

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