The mortgage market should get
a boost from the economy and millennials
The U.S economy and labor market continue to show strength heading into 2019, which bodes well for the
Unemployment is at its lowest level since 1969, wages are finally showing meaningful gains above inflation and
employment growth is averaging over 200,000 job additions per month. Furthermore, recent survey data show
most consumers are spending and optimistic about their current and future financial situation.
We see the prospects for wages to trend
higher, especially given how many job
openings there are in the economy. Can
the unemployment rate go any lower?
We believe it can — down to 3. 5 percent by the end of 2019, which should
lead to faster wage gains and sustainable growth in purchase demand.
Despite these favorable economic conditions, the housing market is struggling to reach its full potential of rising
home sales and increased construction.
Higher mortgage rates, coupled with
stubbornly low inventory levels of new
and existing homes for sale, continue to
prevent too many aspiring homebuyers
from reaching the market.
While some areas are seeing a much-needed improvement in inventory levels,
overall supply in many markets is still
not sufficient to meet demand. Not
enough current homeowners are listing their homes for sale, and builders face challenges finding the labor to
Additionally, many builder costs have increased dramatically, land for building has been tough to secure, and
financing for smaller builders to fund their projects has been a challenge. That is why housing starts this year
and next — especially for single-family homes — will unfortunately continue to undershoot what is needed to
balance supply with growing demand.
There is some good news for households looking to finance a home purchase, however. Mortgage availability is
slowly increasing. Lenders are making more conventional low-downpayment programs available to prospective
The increase in availability is likely in response to the growing number of first-time buyers in the market who, despite
facing affordability challenges, are seeing increased success reaching the market. Meanwhile, jumbo-credit
availability also is expanding, with the jumbo index increasing this past October to its highest level since our survey
began in 2004.
The solid economy, robust hiring and rising wages also are keeping mortgage delinquencies and foreclosure
inventories at, or near, their lowest levels in a decade. Natural disasters, unfortunately, are a major factor in
determining whether borrowers can make timely mortgage payments.
Because of this, there may be some noise in the quarterly data in coming months, as a result of another busy
hurricane season in the Southeast and the ongoing wildfires in California. The overall story, however, remains
the same: Nearly all homeowners are making on-time mortgage payments, which is keeping delinquency rates
at very low levels.
As we move into 2019, the healthy job market and demographics — think the large share of millennials
entering the prime ages to buy a home — will help to drive the increase in purchase-mortgage originations.
These two factors are the primary reason why the Mortgage Bankers Association is forecasting $1.24 trillion in
purchase-mortgage originations in 2019 — up 4.2 percent from 2018. With higher mortgage rates, refinance
originations will continue to trend lower next year, decreasing by 12. 4 percent — down to $395 billion.
The current economic expansion also is expected to forge ahead in 2019, with expected gross domestic product
growth at 2.3 percent, before some deceleration to 1.5 percent in 2020 and 2021. While the Federal Reserve is
expected to increase short-term rates further this year, 30-year mortgage rates should rise only modestly from
this point forward — averaging 5.1 percent for 2019 through 2021. n
Source: Mortgage Bankers Association
*Four one- to-four unit dwellings
Total mortgages Purchase mortgages Refinance mortgages
Mike Fratantoni is chief economist
and senior vice president of research
and industry technology at the Mortgage Bankers Association (MBA). He
is responsible for overseeing MBA’s
industry surveys, benchmarking studies, economic and mortgage origination forecasts, industry-technology
efforts, and policy-development
research for the single-family and
commercial/multifamily markets. Prior
to joining MBA, Fratantoni worked in
risk management and senior economist roles at Washington Mutual and
Fannie Mae. Reach the MBA at
U.S. Mortgage Originations*