The near-term impact of inflation has the Mortgage Bankers Association warning of potential setbacks to growth and a 2027 federal rate hike, but lenders should still see volumes increase this year, it said on Sunday.
Originations will grow approximately 6% year-over-year in 2026 on a dollar-volume basis, with the trade group presenting baseline expectations of $1.41 trillion in purchase mortgages and $757 billion in refinances at its secondary markets conference in New York.
Current economic volatility in light of the Iran War's effect on oil markets could easily exacerbate inflation and mortgage rates and quickly disrupt the outlook, though, according to MBA Chief Economist Mike Fratantoni. A worst-case scenario where price shocks drive mortgage rates one percentage point higher would result in a swing of more than $370 billion fewer originations, he said.
"It is a really challenging, volatile macroeconomic environment," he said. "This inflation situation is a problem. It's worse than markets had expected," he said during an on-stage presentation.
For 2027, MBA's projections based on current trends stand at $1.51 trillion in purchase originations and $684 billion in refinances. The following year, numbers should rise to $1.54 trillion for purchases, while refis would shrink to $674 billion.
What's ahead for monetary policy
Swiftly changing developments in the first half of 2026, with the likelihood of a near-term diplomatic resolution to the Mideast conflict slim, resulted in the MBA revising its monetary policy forecast this month. In April, the association's economists predicted the Federal Reserve holding its benchmark funds rate at existing levels through 2028.
"Relative to all the inflation news, we've now changed that call, looking for a first hike in the middle of 2027 and then a second hike in 2028," Fratantoni said. He noted that markets had already jumped ahead with expectations for a more hawkish Fed next year.
As a result, 6.5% represents a "good centering point" for the 30-year mortgage rate over the next two years, he said. The Mortgage Bankers Association number comes in higher than recent predictions from Fannie Mae.
The lock-in effect's influence on the mortgage market
Current rate levels are also contributing to only marginal growth in housing prices, with projections of growth to come in under 1% for the next two years nationwide.
"I think there definitely has been a strong signal there that inventory is out there, and price growth is slowing because of that," said deputy chief economist Joel Kan.
At the same time, though, the inventory growth continues to be tempered by the lock-in effect, where many homeowners are opting to hold onto low interest rates rather than relocate and take on higher monthly payments at today's levels, MBA economists added.
"We're oversupplied in a number of markets. That's going to be offset by a still relatively tight supply in places like the Northeast and the Midwest, but nationally don't expect home prices to move," Fratantoni said.
While economic volatility is turning into the dominant theme in 2026, mortgage lenders, by and large, are learning to adjust, Kan pointed out. In its just released nonbank production report, MBA found 76% of firms profitable in the first quarter.
"Clearly, companies have leaned out over the last few years, generating volume and doing their business with pretty small crews," Kan said. Companies are still keeping enough employees on hand, "so that if you do have a pickup, whether it's purchase or refi, you have enough staffing as needed," he said.
Still, a wide disparity exists between the top and bottom of the market in net production income. The top 20% of companies saw 130 basis points worth of income, but the lowest fifth experienced a 95 basis point loss, MBA's data showed.
