Everyone predicted a revival in purchase money mortgage lending in 2013, and it looks like they’re right, so far.
During the first quarter of the year, an estimated $119 billion in purchase-mortgage loan originations were recorded, according to new figures from Inside Mortgage Finance.
This represented a 15% improvement over the same quarter in 2012. However, purchase originations were down 13% from the fourth quarter.
Still, things are only expected to get better, if the loan application data from the Mortgage Bankers Association (MBA) is any indication – demand for purchase mortgages was at a three-year high this spring.
And it appears as if the purchase market is just starting to heat up for the big summer buying period.
Late last year, the MBA predicted purchase activity would increase from $503 billion to $585 billion, while refinances were slated to slip from $1.2 trillion to $785 billion.
With mortgage rates on the rise, we’re finally starting to see the refinance share of the market cede to purchases, though the former still has a commanding 71% share.
Will the Higher Mortgage Rates Hurt or Help?
Clearly this will make many rethink a refinance, and it could even influence some home buying decisions. Let’s hope most borrowers were locked prior to the onslaught.
Still, it’s easy to freak out over nothing – if you allow me to get historical for a moment, mortgage rates are still on the low, low end, even with this most recent uptick. And anyone purchasing a home today should be happy with a 30-year fixed at 4%.
However, happiness aside, there still is the qualification issue. Even if motivation is unscathed, there’s the more black and white numbers game.
Now that mortgage rates have increased nearly one percent, a lot of would-be home buyers may have been thrown out of the qualification pool as purchasing power has been diminished.
Even if they can afford the monthly mortgage payment, their higher debt-to-income ratio may not fly with banks and lenders.
Let’s face it, mortgage rates aren’t the main problem right now; the issue is finding a property that doesn’t involve a bidding war.
It’s hard to believe that the recent increase in rates would sway someone’s interest in purchasing a property, especially if they are willing to offer $50,000 above the list.
But it could thin out the eligibility pool, which would actually make it easier to land a property for those who do still qualify for a mortgage. So there is a silver lining there for some.
Good News for Mortgage Brokers?
While the higher rates may or may not be good for homeowners, the shift from refinance to purchase money should benefit local mortgage brokers.
When it comes to refinancing, borrowers tend to shop around for the lowest rate, whether that’s with their own bank or credit union, or with an online lender.
With home purchases, buyers are heavily influenced by their real estate agents, and many agents have broker friends they refer business to.
So as purchase mortgages gain traction, brokers may see an uptick in business, while online lenders and other not-present players will probably see volumes decline.
After all, a lot of borrowers will want to meet the individual handling their ever-important purchase loan.
If you’re a buyer, take a moment to think about your agent’s referral. Make sure you’re actually getting the best deal, and using someone reliable. Don’t just believe everything your agent tells you.
Read more: Is the real estate market about to be tested?