Insights
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In our last forecast update note from October, we predicted 2025 mortgage originations would get up over $2 trillion, but the fourth quarter brought an unusually high share of cancelled purchase agreements, so we now believe the final number will come in just below that at $1.94 trillion. We’ll see when the official HMDA data come out, with the preliminary release due at the end of March.
Meanwhile, since the start of the war in Iran, world markets have plunged into uncertainty and volatility. The Strait of Hormuz is virtually closed as we write this note, effectively holding hostage about 20% of global energy supplies. The longer the crisis continues, the more the damage expected to the world economy in terms of much higher oil and gas prices. The shock will increase inflationary pressure across many goods and services as well as increase the probability of recession around the world.
However, as dire as the economic damages many countries may face with this shock, the U.S. is better insulated than most. According to the U.S. Energy Information Administration, we have been a net energy exporter of oil and natural gas since 2019. We’ll be better able to weather Middle East oil and gas disruptions than European or Asian countries. Still, average U.S. gasoline prices are already up more than 30%, so many of us will be spending more on gas, and thus, less on other goods and services, resulting in constrained consumer demand.
The outlook for most of the key economic indicators affecting mortgage originations is always uncertain, but in the current environment, they’re even more uncertain than usual. The risk of stagflation (higher inflation combined with lower economic growth) is increasing.
Real GDP: The latest GDP data were released earlier this month, with Q4 real GDP rising 2.0% year-over-year, about where most economists expected. In our forecast, we assume that by year end 2026, year-over-year GDP growth will still be positive but likely lower than 2.0%, with the oil shock being the biggest factor decelerating growth. Downside risks will increase the longer the Strait of Hormuz is effectively closed.
Employment: Labor market data so far in 2026 continue to tell the tale they told in 2025: a slowing but still stable economy. New job creation is slowing sharply, but job losses and layoffs are still modest in the current “low hire – low fire” economy. The unemployment rate was 4.4% in February, still low by historical standards. We expect a slowly increasing deterioration in the labor market this year.
Interest Rates: Rates for 30-year fixed-rate mortgages have dipped below 6% a few times in recent weeks, the lowest they’d been in nearly 4 years. However, since the Iran war began, the primary direction long-term rates have moved is higher, anticipating the higher inflation the oil shock will cause. We expect long-term rates to move higher in the near term, pushed up by higher inflation expectations and a higher federal deficit outlook. BUT, if economic growth begins to show more significant signs of slowing or decline, long-term interest rates could fall. That would push up mortgage originations, particularly refinances.
Inflation: As expected, inflation has been inching up. Since its low point of 2.6% last April, the Fed’s preferred inflation indicator, the change in the core PCE price index deflator (personal consumption expenditures index excluding food and energy) has moved slowly higher, reaching 3.1% in January, the highest level since early 2024. We expect the war shock with its rising energy prices to be the most significant factor pushing inflation higher in coming months. But even if energy prices fall back to pre-war levels quickly, reverberations from the administration’s tariff policy will likely keep upward pressure on prices.
Housing Market: From the latter part of 2025 to the end of February 2026, housing affordability had experienced a good perfect storm. Mortgage rates were declining and household incomes were rising faster than home prices, which were nearly flat. According to the February 2026 ICE Mortgage Monitor report, the national “payment-to income” ratio*, an affordability indicator, reached 27.8% in January, its lowest (most affordable) level in nearly four years. However, despite the better affordability conditions and more plentiful inventory levels, home sales haven’t moved much. In fact, the February new home sales number was unexpectedly low — a year-over-year decline — something to watch as we get into the spring peak sales period. And now that interest rates have popped back up a bit, affordability has once again taken a hit for the worse. This may put a crimp on the pace of purchases this year.
In Q4 2025, we had no changes to our forecast, but for this update, we made two key adjustments:
The refi adjustment for 2026 reflects primarily additional application volume observed as rates slowly fell in January and February. For 2027, they reflect expected rate declines due to slower economic activity in the wake of the energy price shock caused by the Iran war.
With those adjustments, our total purchase plus refinance originations estimate for 2025 is $1.94 trillion, a 16% increase from 2024. For 2026, we expect originations of $2.37 trillion, a 22% increase from 2025, with a smaller percentage gain in the purchase segment but a larger percentage gain in the refinance segment. For 2027, we see small gains in both the purchase and refi segments, but much will depend on how the Iran war shakes out and its impact on U.S. and global economies.
As always, the mortgage originations market is a wild ride.
* “Payment-to-income” ratio is the share of the median income required to make the mortgage payment to purchase the average priced home using a 20% down payment and a 30-year fixed rate mortgage. As reported in the February 2026 ICE Mortgage Monitor.