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A Look at 2019 Mortgage Origination Projections

As interest rates continue to rise and consumers watch an increasingly volatile market, it appears that a larger number of borrowers may choose to sit on the sidelines in the coming year. The Mortgage Bankers Association has released its Mortgage Finance Forecast for October 2018, predicting a dip in mortgage originations in 2019.

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2019 Mortgage Origination Projections

The MBAs forecast predicts that 2019's mortgage originations are going to total $1.63 trillion compared to an estimated $1.64 trillion in 2018. This breaks down into mortgage purchase originations of $1.24 trillion, which is 4.2 percent higher than 2018, and $395 billion in refinance originations, a drop of 12.4 percent from 2018.

The MBA revised its 2017 estimates of housing originations up from $1.71 trillion to $1.76 trillion based on recent data released pursuant to the Home Mortgage Disclosure Act (HMDA). It also expects a turnaround in this trend in 2020, with total originations of $1.68 trillion, $1.27 trillion purchase originations, and $410 billion in refinance originations.

Even though the Federal Reserve is expected to increase short-term interest rates even more, the MBA expects that 30-year mortgage rates will only increase marginally over the next several years. Specifically, it anticipates rates of 5.1 percent in 2019 and through 2021. The expectation is that mortgage originations will remain fairly steady thanks to healthy economic factors.

The U.S. is currently enjoying its lowest unemployment rate in nearly half a century, resulting in more confident homebuyers. The prediction is for employment to dip to 3.5 percent by the end of 2019, leading to higher monthly job growth and higher loan origination numbers. Economic growth is predicted to register at 2.3 percent in 2019 before cooling in 2020 and 2021.

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Anticipated Challenges for the Mortgage Industry

The MBA states that, while the housing market and macroeconomic backdrops are expected to remain favorable, the mortgage industry will continue to face several challenges. These include the significant pressure in margins coupled with the drop in overall originations. Lenders of every type are also experiencing more competitive pricing combined with elevated costs to achieve higher volume. These factors are impacting bank revenues and profitability.

Another continuing challenge is this nation's housing supply coupled with rising materials costs. Builders are dealing with roadblocks in finding labor to complete their projects as well as subcontractors for jobs such as plumbing and drywall. Now that demand for new homes has cooled, some builders are becoming weary of approving new starts.

Input costs have also soared, which is impacting every aspect of the new home market. Lumber shortages, new tariffs, and transportation problems are causing the cost of new home construction to skyrocket. Other factors impacting the housing market include the availability of land for projects as well as a tightening on the availability of capital for some smaller builders to use for funding projects.

Portfolio Performance and Loan Originations

When the housing market is in flux, it only makes sense to closely review current loan portfolios to ensure the best possible returns and a minimum level of risk. Even as interest rates continue to rise, there will still be demand, but the types of loans might differ in the coming year.

These are complex issues that will continue to face lenders and borrowers. Banks can put themselves in the best possible position by partnering with an asset management company that can provide access to loans in a variety of different asset classes.