The Mortgage Bankers Association updated its mortgage finance and economics forecast, significantly revising the volume of purchase originations upwards.    

According to the new forecast, purchase originations will reach $801 billion in 2015 and $855 billion in 2016, increasing $71 billion and $94 billion, respectively, over the association's previous forecast.

Mike Fratantoni, MBA’s chief economist, along with senior MBA economists Lynn Fisher and Joel Kan, explained the drivers behind the increased forecast in MBA’s July Economic and Mortgage Finance Commentary.

“The housing market recovery has shifted to a higher gear. We have revised upwards our estimates and forecasts for home sales and home prices, and the cash share of purchases has declined,” the commentary stated.

“All of these factors point to higher levels of purchase originations. Revisions to our purchase origination forecast in July result from changes in our expectations about the rate at which purchase applications and housing sales translate into dollars of mortgage originations.

In addition, purchase originations are expected to increase to $801 billion in 2015, an upward revision from $730 billion in last month’s forecast, and from $638 billion in 2014. In 2016, we increased our forecast to $885 billion in purchase originations.

“More sales are being financed, and more applications are being approved. And we expect that this trend will continue into 2016 and beyond, as the broader economy and job market continue to improve,” the report stated.

Mortgage rates are expected to hit 4.5% by the end of the year, which is projected to refinance volume down as expected. 

However, the MBA’s forecast for refinance mortgage originations remained the same as last month.

Refinances are expected to be $551 billion in 2015, compared to $484 billion in 2014. As a result, total originations are expected to be $1.35 trillion in 2015 and $1.26 trillion in 2016, compared to $1.12 trillion in 2014.