Data from both the Mortgage Bankers Association (MBA) and Freddie Mac tell us that when it comes to overall mortgage loan activity, home mortgage refinance originations are carrying the day. Currently refinance originations make up nearly 81 percent of all home finance activity.
Though the year is yet complete, projections by the MBA anticipate the year will end with $1.2 trillion in mortgage refinance originations, 28 percent higher than last year. The same projections anticipate that mortgage interest rates will rise over the next two years causing refinance originations to fall off to $760 billion in 2013, and dropping further to $360 billion the following year.
Home purchase originations should finish this year at around $500 billion in originations with an increase to $585 billion in 2013, which would be an increase of 16 percent. The MBA says that the gain in purchase originations next year will be driven by an “increase in owner-occupied sales financed with mortgages as opposed to cash purchases by investors.” This data would be in keeping with the anticipated increase in home sales for next year.
Rates for 30-year fixed-rate mortgages are expected to stay under 4.0 percent through the end of this year, but the MBA states interest rates should rise to 4.1 percent in 2013 and possibly nudging up beyond that.
As rates increase it will become less attractive to refinance a home. The potential for rising mortgage rates, along with the increase in home prices, should also be an added incentive for any potential homebuyer to act now while both rates and prices are incredibly low.
According to Freddie Mac, fixed-rate mortgages were overwhelmingly the loan of choice during the last quarter, with 95 percent of all refinancers choosing a fixed-rate package. Also, nearly one-third of those choosing a fixed-rate loan to refinance their mortgage opted to go with a shorter-term loan than what they had held prior.
Anyone paying attention to the latest economic/political news has heard of the ”off the cliff” scenario. Simply put, future economic and housing growth will be contingent on tax and economic policies put in place by this administration in the near future.
The MBA echoes many sources in the mortgage and housing industry in stating that the country must see a significant drop in the unemployment rate in order to sustain a healthy recovery in the housing market. It takes consumers with good stable jobs to buy homes and all the attendant consumer goods that go with ownership.
Without this sustained growth the housing industry may not be able to be the continued driving force for economic growth in the American economy, as it has been for most of the past sixty years.