If you think this year has been slow in mortgage land, don’t ask what next year has in store.
A new forecast released by the Mortgage Bankers Association (MBA) this morning doesn’t paint a pretty picture for 2014.
In fact, the industry group sees residential loan origination volume falling 32% from 2013 to $1.2 trillion.
That compares to its upwardly revised estimate of $1.7 trillion for 2013, which is up from $1.6 trillion thanks to recently released HMDA data.
It’s Not for a Lack of Buyers
But don’t blame home purchase activity. Loans taken out to acquire a home are expected to increase nine percent next year.
While seemingly weak, it’s more an inventory issue than anything else. There are probably tons of people out there willing to buy homes, but availability continues to be a major roadblock.
This is partially because homeowners are holding on now and waiting for future gains before listing their properties, now that the worst has seemingly come and gone.
All that said, the MBA sees purchase originations rising to $723 billion in 2014 from $661 billion this year.
For 2015, they see marginal improvement, with purchases growing to $796 billion.
Refis to Take a Back Seat
As I’ve noted for a while now, refinance activity has been cooling and is expected to lose its stranglehold on the market in the very near future.
And things are expected to slow down even more over the next couple years.
The MBA sees refinance activity dropping a hefty 57% to $463 billion in 2014 from $1.08 trillion this year.
In 2015, refi volume is slated to fall to $433 billion, meaning purchase loans will come somewhat close to doubling refinance activity.
As alluded to earlier, as home prices rise, home sales will increase because more sellers will have the required home equity to make the move.
There will also be a smaller share of investors and all-cash buyers, so purchase mortgages will get a boost that way as well.
Additionally, the higher home prices will be accompanied by higher loan-to-value ratios as buyers struggle to come in with large enough down payments to keep LTVs low.
That’s good news for private mortgage insurers, though the death of the 3% down mortgage will require that borrowers put down 5% or head over to the FHA for financing.
Mortgage Rates Still Expected to Hit 5% Next Year
We’ve heard it year after year, yet mortgage rates continue to defy the laws of gravity.
The MBA, like just pretty much everyone else, expects 30-year fixed mortgage rates to rise above 5% next year, and then to increase to around 5.3% by the end of 2015.
While this is still close to rock bottom, it would represent a near 1% increase above current rates, which have since pulled back thanks to continued MBS buying via the Fed.
As rates rise, refinances are obviously expected to slow, with home equity loans gaining market share as borrowers elect to keep their first mortgages intact.
HARP activity is projected to be weak in 2014 as well, with the MBA apparently coming to terms with the fact that those who haven’t taken advantage of the program thus far probably won’t ever do so.
However, they do see a small boost at the end of 2015 when the program finally comes to a close.
And perhaps the new cutoff date based on the loan closing will provide a little bump for HARP this year and early next year.
Sadly, the MBA doesn’t seem to believe in HARP 3, if this forecast is any indication.