Continued economic growth, a strong jobs market and higher wages should provide a lift to purchase origination volume next year, though such gains will likely be offset by a steep drop in refinance activity.

Purchase origination volume should rise by 7.3% in 2018, according to the Mortgage Bankers Association. Refinance volume, however, is expected to drop 30%, causing a decline in total originations.

A lack of housing inventory is driving continued price increases, making it “difficult for a lot of people to transcend" and enter the market, Lynn Fisher, the MBA's vice president of research and economics, said at a press briefing's during the MBA’s annual convention in Denver.

Home prices are growing faster than wages, added Mike Fratantoni, the association’s chief economist.

There are no signs that the inventory shortage will be addressed anytime soon, Fisher said, noting that homeownership fell after the housing bust when many homes became rental properties.

"It is going to take some work for the price signals to be received for that stock to be sold back to homeowners," Fisher said.

Not all of the single-family rentals will revert to homeownership. Most single-family rentals are owned by mom-and-pop investors who are "getting good income from renting now," so there is no incentive to bring those properties to market, Fisher said.

Mortgage interest rates will continue to rise in coming years, but "not terribly fast and not terribly much," Fratantoni said, which should not affect the purchase market.

The projection for overall economic growth is 2% next year, slowing slightly to 1.9% in 2019 and to 1.8% in 2020. The Federal Open Market Committee should raise short-term rates in December with three hikes expected next year and two more in 2019.

The MBA predicts that total 2017 volume will fall by 18% from a year earlier, to $1.69 trillion. The projected volume for 2018 is expected to decline to $1.6 trillion before rising to $1.64 trillion in 2019 and $1.71 trillion in 2020. Data for 2016 was revised after the release of the Home Mortgage Disclosure Act data.

Purchase volume over the next few years will become a larger percentage of originations, totaling $1.09 trillion this year and $1.17 trillion in 2018. The numbers should increase to $1.25 trillion in 2019 and $1.3 trillion in 2020.

The lack of supply of new homes for sale is creating competition for originations and margin compression for mortgage bankers, mostly on the expense side, said Marina Walsh, the MBA’s vice president of industry analysis.

Revenues “help up pretty well” in the first half of 2017, Walsh said. Even with the drop in volume from last year, mortgage firms were unable to adjust their cost structure.

The effect of the hurricanes in Texas and Florida, and the California wildfires should increase the cost of building new homes, while also slowing the timeline down a bit, Fisher said. "We have a pretty modest housing starts path for the next couple of years despite the pretty fast increase in house prices."

The hurricanes did not have a lasting effect on mortgage activity, Fratantoni said. When the storms hit there was a big drop in application activity in Texas and Florida, but it bounced back to normal within a couple of weeks.