Home purchases to remain solid in 2020, thanks to low interest rates

Thanks to historically low-interest rates — and cheap mortgage rates — home purchases are expected to continue to increase in 2020, according to a new forecast from the Mortgage Bankers Association.

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The Washington, D.C.-based organization estimated that mortgage originations will grow 1.6 percent next year to $1.29 trillion. That’s a slight drop from 2019, which could post the biggest gain since 2007 at $2.06 trillion.

Interest rates are expected to remain low next year, with the Federal Reserve poised to reduce borrowing costs for the third time this year on Wednesday. And as the economic outlook remains cloudy, policymakers at the U.S. central bank seem unlikely to raise rates anytime soon.

"Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook," MBA's chief economist Mike Fratantoni said in a statement. "These lower rates will in turn support both purchase and refinance origination volume in 2020."

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Lower-than-expected mortgage rates gave a huge bump to the refinance market in 2019, resulting in the strongest year since 2016.

"Given the capacity constraints in the industry, some of this refinance activity will spill into the first half of next year," he said.

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Sales could also increase thanks to lower prices. After several years of home cost surpassing average wage gains, home prices are also expected to fall next year, as the number of available houses for consumers grows, MBA said.

"Moderating price growth is healthy, as it allows household incomes to catch up with home values," Fratantoni said. "This improvement in affordability will lead to more home sales – especially given the rise in household formation and growing demand from first-time homebuyers."

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