The Mortgage Bankers Association announced Tuesday that it expects purchase originations 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).
MBA Chief Economist and Senior Vice President for Research and Industry Technology Mike Fratantoni said 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,” Fratantoni said in a statement. “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’s statement noted he 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,” Fratantoni said.
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,” Fratantoni said in a statement.
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 data release.
