Mortgage originations in 2019 appear to be headed for their best year since 2007.  Make Fratantoni, chief economist and senior vice president of the Mortgage Bankers Association (MBA) told an audience at MBA's 2019 annual convention that he expects originations to total $2.06 trillion this year but to decline to around $1.89 trillion in 2020.  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.

MBA's annual forecast predicts that purchase originations will increase by 1.6 percent to $1.29 trillion next year, but a decline in refinancing, which surged this year due to low interest rates, will offset the purchase gains.  Refinancing is expected to drop by 24.5 percent to $599 billion.  The following year will see total originations slow even further, to a total of $174 trillion.  Purchase originations will be slightly higher at $1.33 trillion while refinancing will fall to $432 billion.

Fratantoni, says "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.  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."

Home price gains have decelerated in several markets this year and Fratantoni expects the slowing to continue over 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," he said.

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," he said.

He expects that the Federal Reserve will cut rates one more time before the end of the year, and then hold at that level until the economy resumes growth at a faster pace. He anticipates that the 10-year Treasury rate will increase gradually to around 1.9 percent next year, which will cause the 30-year fixed-rate mortgage rate to rise to around 4 percent.

"The health of the labor market plays a significant role in the outlook for housing. Although job growth is expected to slow along with the economy, overall market conditions look decent next year. Low mortgage rates and millennial buyer demand will be the primary reasons for a slight increase in purchase activity in 2020," said Fratantoni.

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 (HMDA) data release.