2020 Preliminary Mortgage Forecast: Political Turbulence with a Mortgage Origination Surge

This blog post is from 2019 and may be outdated. For the latest insights, visit our main blog feed. 

As we move toward the end of this year, political turmoil – both domestic and international – has risen to remarkable levels, but the American economy keeps chugging along. Moreover, thanks to an interest rate decline that was faster than expected, we have a modest refinance boom and slightly stronger purchase volumes providing a welcome origination surge. Our preliminary 2020 forecast shows purchase conditions remaining positive, increasing 4.7% in 2019 and 5.6% in 2020.  With the mini refi boom, refinances will spike up at least 43% this year before tapering off and declining by as much as 18% next year.



Here are the key economic factors influencing our outlook:

• GDP: The longest U.S. expansion ever should continue well into 2020 and maybe longer.  Despite concerns of slowing global trade and U.S. manufacturing, the economy seems poised to continue cruising, though perhaps in a lower gear.  Consumption expenditures remain a key driver.
• Stock market: Quite skittish lately, but still very close to its all-time high.
• Employment conditions: Very robust, although new job creation is slowing and wage growth may be moderating.
• Inflation: For a while, inflation exceeding the Fed’s 2% target was the worry.  Lately, the concern is falling inflation.  This was one of the justifications for beginning to lower the Fed Funds target, a move aimed to stimulate and extend the expansion.
• Interest rates: Both short-term and long-term rates have fallen for most of the year, igniting a modest refi boom.
• Housing market: In fits and starts, home sales have also trended higher, even though inventory continues to be tight.  New construction is still sluggish, and generational low mobility continues to restrict the supply of existing homes for sale.  Expect price appreciation to resume its climb.

This economic cycle is playing out a little differently than expected, and that’s been a boon for mortgage originations. Usually by this point in a cycle, inflation and wage increases are starting to overheat the economy.  When this occurs, the Fed raises short-term rates to slow things down.  This was the path the Fed followed for 2017 through 2018, as it raised rates eight times.  However, it gradually became clear that overheating wasn’t a significant problem in this slow-growth economy, especially as the rest of the world was slowing down even more.  This gave the Fed the latitude to begin easing rates.  Some even argue that the Fed kept the brakes on too long.   Meanwhile, with long-term interest rates, the prospect of slower growth coupled with increased turmoil and uncertainty has resulted in a “flight to quality” where money flees riskier investments and finds its way into riskless Treasury bonds, which pushes yields down.  Mortgage rates are linked to those yields, so they have fallen as well.  The result has been a little refinance boom which will help boost mortgage originations the rest of this year and on into 2020.  To  a lesser extent, it has also raised purchase volume by making the cost of mortgages more affordable.


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