Mortgage lenders brace for more housing market headaches in 2019

Mortgage

The mortgage industry heads into 2019 with little relief from the market strains of the past three years. To succeed — or at least survive — lenders must confront three major questions:

— Where are the opportunities to sustain, or even grow, origination volume amid tight housing supply and tepid refinance demand?

— Can loan product diversity and competitive pricing overcome the affordability challenges brought on by rising interest rates, home prices and uncertainty in the broader economy?

— Given the relentless upheaval, is it even worth it to stay in business?

As recently as October, many economists were optimistic that the good economic times of 2018 would continue into the new year. But the Federal Reserve’s year-end interest rate hike, a partial government shutdown and a precipitous drop in the stock market has tempered those expectations.

Even with December’s swoon, the economy doesn’t have the same signs of fundamental weakness it did a decade ago. Similarly, mortgage originations project to decelerate, but not face total devastation.

“We’re still seeing above-trend GDP growth that is likely to slow as the impact of last year’s tax cuts wears off with higher interest rates,” Calvin Schnure, the National Association of Real Estate Investment Trusts’ senior vice president of research and economic analysis, said in an interview.

As of the third quarter in 2018, the amount of total mortgage originations declined annually for the fourth quarter in a row. It’s a trend expected to continue.

Origination forecasts show a dip to $1.61 trillion in 2019 from $1.63 trillion in 2018, according to Fannie Mae. While a $20 billion decline is small from a percentage point standpoint, it’s nevertheless a large enough sum to drive further consolidation among industry firms.

Here’s a look at the economic fundamentals that will be key drivers in the mortgage origination and housing market in 2019.

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