2018-2019 Mortgage Forecast Update

Posted By Laird Nossuli on Oct 15, 2018
This blog post is from 2018 and may be outdated. For the latest insights, visit our main blog feed.

As we head into Q4 of 2018, we want share our insight on the 2018 housing market, and more importantly, provide you with our projections for 2019. Our forecast shows purchase dollars increasing from $1.07 trillion in 2017 to $1.12 trillion in 2018, with another 7.3% rise to $1.2 trillion in 2019. Our refinance projections will continue to drop from $597.9 in 2017 to a range of $370.4 to $443.2 billion for 2019.  Our chief of forecasting, Mark Watson, provides some brief commentary following the tables and charts below that summarize our mortgage market forecast through 2019.
2017-2019 Mortgage Forecast
Mark's commentary:
Heading into the fall of 2018, the political scene is as turbulent as ever.  Despite that, the overall economy is still looking very robust, while the housing and mortgage industry struggle. Here are a few key points:
  • GDP: the first estimate of Q2 real growth was +4.2%, though most economists agree that a level this high is unsustainable. However, the expansion will continue into 2019.
  • Stock market: a dip in Q1, but since then, it's on a continued march to a new all-time high.  It’s the longest bull market ever.
  • Job growth: continues to be solid, although wage growth remains much slower than expected.
  • Inflation: on the rise. Core PCE inflation has been bumping up against the Fed’s 2% target for several months now and the headline PCE rate has been over 2% the last 6 months in a row.
  • Interest rates: on the rise, both short-term and long-term.
  • Housing market: the inventory squeeze continues to worsen, with an increasing number of markets experiencing sales declines due to the lack of homes to sell.  The months of supply statistic is the lowest it has been in 4 years and continues to fall.  Construction is still sluggish, and generational low mobility is restricting the supply of existing homes for sale.
  • Delinquencies / foreclosures: back to “normal” after a decade out of whack.
A year ago, we were skeptical that the tax bill would pass, but in a close-run battle, it did.  The consequences from that have been as expected, and on balance, they are bad for housing and for the mortgage industry.  Most of the fiscal stimulus goes to older, wealthier households, not the younger households that drive most of housing demand.  But more critically, bond yields and thus mortgage rates have jumped up sharply, cutting into mortgage affordability and restricting the potential purchase market, while decimating refinance demand.  As mortgage originations have declined, layoffs have risen in the industry and profitability has declined as well. 

It’s possible we’ll experience a hangover following the unneeded stimulus that may ultimately lead to a slowdown.  If so, that will ease the upward pressure on interest rates and perhaps help revive origination volume.  Unfortunately, such an outcome is likely to be a year or more away from now.

"These are challenging times for mortgage lenders, and next year will be tough as well," summarized Mark Watson, iEmergent's chief of forecasting. "Expect to see some significant changes in the competitive landscape as lenders struggle with profitability and growing originations in this tightened market."
2015-2022 Mortgage Originations

Despite our projections of a tightening U.S. mortgage market and the very real challenges many lenders face to maintain profitability, there are many state, metro, county, and local markets where mortgage opportunity continues to grow at a healthy pace.  In our next commentary, we will provide segmented detail regarding product and loan types.  If you are interested in reading our 2017-2019 Mortgage Market Summary by State, please download it here.

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