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October 25th, 2012

MBA: Mortgage rates to remain steady, refis fall off in 2013

by Peter Miller


Sold sign resizedSurely more than one source believes that mortgage rates will remain low in the coming year, but the Mortgage Bankers Association has come out with specific predictions for the first half of 2013, including mortgage rates and loan originations.

Mortgage rates below 4 percent

“Mortgage rates are likely to stay below 4 percent through the middle of 2013, principally due to the announced ongoing purchases of mortgage-backed securities by the Federal Reserve under its QE3 program,” said Jay Brinkmann, the MBA’s chief economist, in a statement. “The Fed has committed to buying $40 billion of agency MBS per month until the labor market shows significant signs of improvement.”

Loan originations down as well

While continued low mortgage rates can certainly be seen as a positive for borrowers, the impact on the lending and real estate industries will be very different. The MBA predicts that $1.3 trillion worth of loans will be originated in 2013, a substantial decline from the $1.7 trillion expected to close in 2012.

How does the MBA explain the $400 billion decline? “We expect 2013 refinance originations to play out like our original expectations for 2012, with a long tail of refis extending through the first half of the year followed by a rapid drop-off in the second half,” said Brinkmann.

This blog has mentioned it time and again: mortgage rates only have so much more room they can realistically fall. The fact is, so many homeowners have already refinanced once or maybe even twice that the pool of available candidates has shrunk tremendously.

Purchase takes over

Lenders, brokers, agents, writers, take notice: While refi originations are expected to drop, home-purchases originations are predicted to grow.

“In contrast,” said Brinkmann, “we expect a 16% increase in purchase originations in 2013 over 2012, with every quarter in 2013 exceeding the same quarter of 2012. The increase in purchase volumes will be driven by continued modest growth in the economy, an increase in owner-occupied sales financed with mortgages as opposed to cash purchases by investors, an increase in new home sales and a small increase in average home prices.”

Variables, considerations and worries

The MBA’s projections are based on several assumptions. However, each positive assumption seems to have a corresponding fear:

  1. Economic activity will modestly grow. However, the MBA worries that “tax increases in particular would be devastating to economic growth. We believe that the entire package of tax increases and spending cuts, if left unaltered, would cut 3.5 to 4 percentage points from our growth forecast.”
  2. Unemployment will remain around 7.8 percent. “Private sector job growth,” said Brinkmann, “is likely to remain in the 125,000 to 150,000 per month range, and while this would result in an additional 1.5 to 1.8 million private sector jobs created during 2013, that growth is well below what we need for a robust market in home sales, construction, and purchase originations.”

Predictions have to be considered, but they’re not written in stone. No one is certain if a federal budget plan will be worked out by the first of next year. If politics remain locked up in November and December then we could encounter the “fiscal cliff.”

The MBA also worries about international events such as an economic decline in Europe, a slow-down in Asia and a Middle-East conflict involving Iran. The real variable is what happens in the Middle East.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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