Originations predicted to hit pre-crisis levels this year

by Ryan Smith31 Oct 2019

Total mortgage originations this year are expected to hit levels not seen since before the housing crisis, according to a forecast by the Mortgage Bankers Association.

The MBA announced Wednesday at its annual Convention and Expo in Austin, Texas, that total originations for 2019 are expected to come in at about $2.06 trillion – the highest level since 2007 ($2.31 trillion) – before falling to about $1.89 trillion in 2020.

Purchase originations are projected to jump 1.6% to $1.29 trillion in 2020. Following a surge this year, refinance originations are expected to slow in 2020, falling 24.5% to $599 billion.

The MBA predicted that purchase originations for 2021 would total about $1.33 trillion, while refinance originations would total around $432 billion.

Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology, said that a slowdown in the global economy and continued geopolitical uncertainty were the driving forces behind 2019’s increased market volatility and dropping interest rates. He expected those factors to continue to be hurdles in 2020, which he said would lead to slower economic growth next year.

“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook,” Fratantoni said. “These lower rates will, in turn, support both purchase and refinance origination volume in 2020. 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 of this industry, some of this refinance activity will spill into the first half of next year.”

Frantantoni also predicted further deceleration in home-price gains over the next few years as more supply becomes available.

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

However, Fratantoni warned that the mortgage industry may see the return of margin pressures that many companies faced in 2018 if refinance volume wanes as expected next year.

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