Millennials drive mortgage origination rises in 2020 and beyond: MBA

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While mortgage volume is expected to shrink next year, it should increase during the following two years and beyond as millennials start buying homes, the Mortgage Bankers Association forecasts.

Originations should finish this year at $1.636 trillion and decline in 2019 to $1.63 trillion, the organization announced at its annual convention in Washington.

That is a change from September's outlook of $1.606 trillion in total production this year and $1.592 trillion for next year.

"The unemployment rate is at its lowest level in almost 50 years, resulting in faster wage growth and more confident homebuyers," Chief Economist Mike Fratantoni said in a press release. "While the Federal Reserve is expected to increase short-term rates further, 30-year mortgage rates should rise only modestly from here. 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."

Home purchase originations are expected to increase in each of the next few years, going from $1.143 trillion in 2017 up to $1.308 trillion for 2021. This increase is expected even as new-home construction remains constrained going forward, Fratantoni said.

Refinancings made up 35% of the revised $1.76 trillion originated last year. They are expected to fall to 28% this year and 24% in each of the next two years, before slightly rising to 25% in 2021.

There was an increase in the 2020 projection to $1.683 trillion from September's $1.631 trillion. The initial projection for 2021 is for $1.74 trillion.

The 10-year Treasury yield should finish this year at 3.2% and rise to 3.4% by the second quarter next year, where it will remain throughout 2020. This should bring the 30-year fixed rate to 5.1%, Fratantoni said.

But those rising rates are affecting consumers' housing market outlook.

"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."

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