Image of Jamie Woodwell in video interview “Commercial and multifamily markets remain strong, even as many growth measures are exhibiting a bit of a downshift,” says MBA’s Woodwell.

WASHINGTON, DC—Two mortgage banking sectors, one organization, one slow-growth economy, two divergent outlooks for the coming year. The Mortgage Bankers Association said last week that it expects commercial and multifamily originations to be essentially flat in 2018. On the residential side, though, MBA is expecting a year-over-year increase in purchase mortgage originations, even as refinancing activity is expected to slide.

Flat growth doesn’t equate to a decline in volume, though. MBA’s latest prediction of a 5% annual increase in commercial and multifamily originations this year, to $515 billion, comes after the association’s projection in June of a slight decline for 2017 volume.

Yet if the prediction holds true that next year will show essentially no gains over ’17 levels, it will represent the first year since 2009 that Y-O-Y comparisons for commercial and multifamily mortgages don’t represent a meaningful increase. The annual growth rate was steeper in the years following the Global Financial Crisis—2010 volume was 44.8% over the year prior, for example, and 2011 brought another 55% improvement—but each year since the downturn has seen larger numbers than the one before.

“Commercial and multifamily markets remain strong, even as many growth measures are exhibiting a bit of a downshift,” says Jamie Woodwell, VP of commercial real estate research. “Property values are up 6% through the first eight months of this year.

“Despite a decline in property sales transactions, commercial and multifamily mortgage originations were 15% higher during the first half of this year than a year earlier,” he continues. “We expect stable property markets and strong capital availability to continue to support mortgage borrowing and lending in ‘18.”

MBA forecasts mortgage banker originations of just multifamily mortgages at $235 billion this year, with total multifamily lending at $271 billion. After strong growth for ‘17, multifamily lending is expected to slow slightly in ’18, the association said last week.

Also last week, MBA predicted that on the residential side, we’ll see $1.2 trillion in purchase mortgage originations nest year, a 7.3% increase from ‘17. In contrast, MBA anticipates a 28.3% drop in refinance originations next year to approximately $430 billion. In total, mortgage originations will decrease to $1.6 trillion in ‘18 from $1.69 trillion in ‘17. For 2019, MBA is forecasting total originations to rebound to $1.64 trillion, with purchase originations of $1.24 trillion and refinance originations of $395 billion.

MBA chief economist Michael Frantatoni says the association predicts home purchase originations will increase at “a faster clip” in ‘18, nearly double the rate that they increased this year. “The housing market has been hamstrung by insufficient supply, with inventories of homes remarkably low given the home price growth we have experienced.

“The job market remains strong, demographic trends are quite favorable, mortgage credit is becoming more available to qualified borrowers, and home prices should continue to rise,” he continues. “All the pieces are in place for stronger growth in ‘18 and beyond.

Frantatoni says MBA anticipates overall economic growth at 2.0% in ’18,after which it will slow slightly to 1.9% the following year and 1.8% in 2020. “We still expect long run growth potential in the US to be somewhat lower, as productivity gains have been persistently slow,” he says.

“Although inflation remains low, a tight job market is likely to increase inflationary pressures in the near term,” says Frantatoni. MBA expects the Federal Reserve to raise short-term borrowing rates again in December, three times next year and twice in ’19.

“The Fed has begun reducing the its holdings of Treasury securities and mortgage backed securities, and this will put additional, modest upward pressure on mortgage rates,” he says. “We expect that the 10-year Treasury rate will stay below three percent through the end of 2018, and 30-year mortgage rates will stay below 5%.” He adds that MBA expects monthly job growth of 125,000 for ’18, down from the monthly average of 150,000 seen this year, and that the unemployment rate is expected to drop to 4.0% by the end of next year.