The economy in general and housing in particular have had a struggle getting momentum in 2015 so far, but that doesn’t deter the optimism analysts at the Mortgage Bankers Association feel for the rest of 2015.
In the mortgage market, recent rate volatility has produced similar swings in mortgage application activity. Following a period of low rates earlier in 2015, refinance applications have predominantly fallen since rates have started to increase in recent months. Even though mortgages rates, at 4.22 percent in the most recent week’s survey, are still low by historical standards, they have increased by almost 40 basis points in the last two months. This has resulted in a 30 percent drop in refinance applications over the same period of time. With fewer borrowers who are “in the money” with an incentive to refinance, and a portion of borrowers still repairing credit and home equity, we expect refinance activity will continue to decline.
Purchase application growth has not been spectacular, but continues to increase on a year over year basis, increasing at an average rate of 14 percent compared to the same week last year for the past two months. Importantly, purchase applications for loan sizes between $150,000 and $417,000 (the conforming loan limit) have increased sharply relative to last year. We still see contraction in the bottom tier of purchase loan amounts (less than $150,000), however, which historically accounts for around 35 percent of all purchase activity.Sponsor Content
We estimate a total of $1.28 trillion in mortgage originations for 2015, compared to $1.12 trillion in 2014. Purchase originations will drive the increase, increasing to $730 billion in 2015 from $638 billion in 2014. Refinances are expected to be to $551 billion in 2015. For 2016, we expect $791 billion in purchase originations. However, rates will likely continue to rise and cause refinances to decline to $379 billion for a total of $1.17 trillion in origination volume in 2016. The chart below shows historical mortgage originations estimates as well as our forecast, and also reveals 2014 as the first purchase dominated market since the mid-2000s, with that trend likely to continue through 2015 and 2016.
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