The Mortgage Bankers Association is predicting a boom in originations and a lull in refinances next year, representing a net decrease to $1.32 trillion in originations for 2016 from $1.45 trillion in 2015.
The association announced Tuesday it is forecasting $905 billion in originations next year – a 10% year-over-year increase.
“We are projecting that home purchase originations will increase in 2016 as the US housing market continues on its path towards more typical levels of turnover based on steadily rising demand and improvements in the supply of homes for sale and under construction,” Michael Fratantoni, MBA’s chief economist, said in a release. “Despite bumps in the road from energy and export sectors, the job market is near full employment, with other measures of employment under-utilization continuing to improve.
“We are forecasting that strong household formation, improving wages and a more liquid housing market will drive home sales and purchase originations in the coming years.
As for refinances, which have been a major driver of broker business in 2015, the association is predicting that segment will decrease by one-third year-over-year to $415 billion.
“Refinance activity will continue to decline as there are few remaining households that can benefit from an interest rate reduction and because rates will gradually begin to rise from historic lows in the coming years,” Fratantoni said. “Home equity products may see an increase in demand as home prices continue to increase at a decelerating rate.”
Overall, housing is expected to play a larger role in economic growth next year than it recently has.
“Our projection for overall economic growth is 2.3% in 2016 and 2017 and 2% over the longer term, which will be driven mainly by consumer spending as households continue to buy durable goods, such as cars and appliances,” Fratantoni said. “The housing sector will contribute more to the economy than it has in recent years.”