The Mortgage Bankers Association (MBA) announced today at its 2018 Annual Convention and Expo in Washington, D.C., that it expects to see $1.24 trillion in purchase mortgage originations in 2019 - a 4.2 percent increase from 2018. MBA anticipates refinance originations will continue to trend lower next year, decreasing by 12.4 percent to $395 billion.

Overall in 2019, total mortgage originations are forecasted to decrease to $1.63 trillion from $1.64 trillion this year. In 2020, 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. While the Federal Reserve is expected to increase short-term rates further, 30-year mortgage rates should rise only modestly from here," said Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology. "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 believes that housing demand should continue to grow over the forecast horizon, with the pace of home sales held back primarily by the constrained pace of new building. He expects that home purchase originations will increase each year from 2019-2021, and 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," said Fratantoni. "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."

Added Fratantoni, "We expect the Fed will raise rates in December, and then three times in 2019, bringing the fed funds target to about 3 percent. 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."

With the economy is running at full employment, Fratantoni expects that monthly job growth will average 120,000 in 2019, 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," said Fratantoni.

MBA revised its estimate of originations for 2017 to $1.76 trillion from $1.71 trillion, reflecting the most recent data reported in the 2017 Home Mortgage Disclosure Act (HMDA) data release. You can download a copy of MBA's updated Mortgage Finance Forecast here, and a copy of MBA's updated Economic Forecast here.