Overall, mortgage originations are projected to decrease in 2016, but several factors tied to the ongoing improvement of the economy and housing market stand to create a boost in the purchase market, according to the latest market forecast from the Mortgage Bankers Association (MBA).
On net, MBA forecasts mortgage originations will decrease to $1.32 trillion in 2016 from $1.45 trillion this year, according to the Economic and Mortgage Finance Commentary: October 2015. Despite the expected decline, the organization is highly bullish on purchase origination activity next year, which it forecasts will increase 10% to $905 billion during 2016.
“We are projecting that home purchase originations will increase in 2016 as the U.S. housing market continues on its path towards more typical levels of turnover based on steadily rising demand and improvements in the supply of homes for sale and under construction,” said Michael Fratantoni, MBA’s chief economist and senior vice president for research and industry technology, in a written statement.
Supporting its forecast, MBA cites other improvements in the economy, including the job market nearing full employment, despite “bumps in the road” from energy and export sectors.
“We are forecasting that strong household formation, improving wages and a more liquid housing market will drive home sales and purchase originations in the coming years,” Fratantoni said.
The bullish outlook also extends to 2017, where MBA forecasts purchase originations will increase to $978 billion, whereas refinance originations will total $331 billion.
MBA’s projection for overall economic growth is 2.3% in 2016 and 2017, and 2% over the longer term, which Fratantoni says will be driven mainly by consumer spending as households continue to buy more durable goods such as cars and appliances. Additionally, he also says the housing sector will contribute more to the economy than it has in recent years.
“We are forecasting a 17 percent increase in single family starts in 2016 and a further increase of 15 percent in 2017,” he said in a statement.
As for interest rates, MBA expects the Federal Reserve will begin to slowly raise short-term rates at the end of 2015, and at some later point after “lift-off,” will begin to allow their holdings of MBS and Treasury securities to run off, likely beginning in late 2016.
“Even with these actions, we expect that the 10-Year Treasury rate will stay below three percent through the end of 2016, and 30-year mortgage rates will stay below 5 percent,” Fratantoni said.
View the MBA Forecast Commentary.
Written by Jason Oliva