Purchase mortgage originations are expected to increase a bit in 2019, but not by enough to offset the continuing decline in refinancing.  A forecast from the Mortgage Bankers Association (MBA), released Tuesday at its 2018 Annual Convention and Expo, predicts a 4.2 percent gain over the 2018 volume of purchase mortgages next year to a total of $1.24 trillion.  However, the association expects refinancing activity to fall 12.3 percent to $395 billion.  The result will be a net decrease of about $1 trillion in total originations to $1.63 trillion.

Business should pick up in 2020; total volume is expected to be $1.68 trillion. Purchase originations are expected to increase to $1.27 trillion and even refinancing will gain ground, rising to $410 billion.

Mike Fratantoni, MBA chief economist and senior vice president for research and industry technology said, "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.  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."

He said housing demand should continue to grow over the forecast span. The only constraint on home sales is expected to be the lack of new home construction. Fratantoni expects home purchase originations to increase each year in the 2019-2021 forecast period and then to increase beyond that as more millennial buyers 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."

He sees another rate hike from the Federal Reserve in December and three more next year, bringing the fed funds target to about 3 percent. The forecast is for the 10-year Treasure rate to rise to about 3.4 percent and then level out. This should bring the 30-year mortgage rate to slightly over 5.0 percent.

The MBA says the economy is running at full employment. With that in mind, monthly job growth will wind down to an average of 120,000 new jobs created each month in 2019 compared with the 200,000 average in 2018. "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.