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In our last Insight post, 2024 HMDA Data Findings (4/29/2025), Laird highlighted some of the mortgage application and origination trends that emerged in the recently released HMDA data. Now, we combine that with our mortgage origination forecast to provide our outlook for the rest of this year and beyond. Both the new actual data and our revised forecast are already available in Mortgage MarketSmart1. In this post we’ll discuss our outlook, but first, we’ll discuss the current economic environment and the assumptions behind our forecast.
While the major macroeconomic indicators are still generally positive, the new administration has been changing things with an aggressiveness and haphazardness that has created significant uncertainty for U.S. consumers and businesses and that will impact the economy as the year unfolds.
In the Bureau of Economic Analysis’s (BEA’s) Q1/2025 advance estimate (released April 30), real GDP declined at a -0.3% annualized rate—the first decrease since Q1/2022. Compared to the previous quarter, the drop was primarily due to an increase in imports, which subtract from GDP, and it was caused by importers stocking up before the tariffs hit. On a year-over-year basis, real GDP growth was still a modest 2.0%. In our forecast, we assume that year-over-year growth by year-end will still be positive but likely lower than 2.0%, as it decelerates due largely to the uncertainties and volatility of new U.S. policies and a decline in business and consumer confidence. We expect further economic slowing in 2026, as impacts from the tariff war work their way through the economy.
The Fed’s main inflation indicator, the change in the core PCE price index (personal consumption expenditures index excluding food and energy), has fallen steadily. Since September 2022 when it clocked in at 5.6%, the year-over-year change has been on a declining trend, reaching 2.6% in March—though it has been stuck in the upper two percent range for the last year. However, we expect the new tariffs, even if substantially cut back from those announced on April 2, will result in higher inflation by year-end.
The Federal Reserve hasn’t adjusted the Fed Funds target rate since its last drop to 4.25-4.50% in December. We expect it to remain here for most, and maybe all, of the rest of the year. However, since Fed policy began softening in mid-2024, market rates on both the short-term and long-term have moved up. The benchmark 10-year Treasury yield has been tracking in the middle 4% range, while the 30-year mortgage rate, which moves with the 10-year Treasury, has been tracking in the high 6% range, so both are near their highest levels since the Fed’s tightening regime ended in late 2023. At this point, we expect long-term rates to move slightly higher by year-end, pushed up by higher inflation expectations and a higher federal deficit outlook due to expected tax cuts. But in 2026, when economic growth starts showing more significant signs of slowing or decline, those long-term interest rates will fall, pushing up mortgage originations, particularly for refinances.
The labor market continues to look good, with nonfarm payroll employment rising by a healthy 177,000 jobs in April and the unemployment rate unchanged at 4.2%. We don’t expect significant deterioration in the labor market until later this year or into 2026.
According to Intercontinental Exchange (ICE), a mortgage data analytics firm, the housing inventory deficit, for years a persistent problem, has improved somewhat in the last year. Slower home sales, new building, and some increase in existing homes offered for sale have increased inventory and reduced home price pressure across many parts of the country, particularly in some sunbelt states. ICE reports that in March, national annual home price appreciation fell to +2.4%, down from +3.5% at the start of the year and over 5% for much of last year. Several major markets, including some in Texas, Florida, and California, have even experienced year-over-year price declines.
In our previous forecast update from last quarter, we estimated that 2024 purchase + refi mortgage originations came in at $1.653 trillion. With the new HMDA release2, we saw that the actual volume was $1.674 trillion, just a 1.3% difference. These totals were up from the dismal 2023 but still sharply lower than the last “normal” (pre-pandemic) year of 2019. Moreover, we expect this year will also come in below 2019.
Our origination forecast for 2025 is $1.796 trillion, a 7.3% increase from 2024 driven by modest gains in both purchases and refinances. The increase is due to growth in average loan sizes, because we forecast loan counts in both segments to decline. For 2026, with our stagflationary (lower growth, higher inflation) outlook, we expect originations of $1.97 trillion, a 9.7% increase over 2025, with a smaller gain in the purchase segment but a larger gain in the refinance segment.
Endnotes
1. Our forecast covers only purchase and refinance originations, and it includes our projections of loan types (government, conforming amounts, and jumbo) within those purchase/refi segments. It excludes the home equity lending segment.
2. The preliminary HMDA data for 2024 was released on March 31. The final data release for 2024 will likely be in September, with usually only a small (less than 2%) difference from the preliminary release.