2018 will see refis plummet as interest rates increase

Rates expected to rise 90 basis points by end of year

At the NEXT 2018 women’s mortgage tech conference in Dallas, Texas, CoreLogic predicted the direction of mortgage rates in the upcoming year, and the consequences it will bring.

Like other economic forecasts about 2018, CoreLogic also predicts rates will continue rising, hitting 4.8% by the end of the year. While CoreLogic Principal Economist Molly Boesel explained these rates are still historically low, it is up 90 basis points from today’s levels.

“One thing we know that’s happening is mortgage rates are going to go up,” Boesel said.

And these rising rates will bring rippling effects across the mortgage finance industry. For example: affordability.

At the height of the housing market in 2006, the average mortgage payment on a 30-year fixed loan with 20% down was $1,250 after adjusting for inflation, Boesel said. After the crash, this payment amount plummeted, but home prices have been rising 5% to 6% per year. Now, borrowers are expected to make payments of $973 by the end of this year.

But incomes have not been keeping pace with the increase in home prices, and now, increasing interest rates.

What’s more, the refinance market is expected to plummet this year.

“Mortgage rates have been low for so long that very few houses are in the money to refinance,” Boesel said.

As a general rule, in order to make refinancing worth it, you would need to decrease your mortgage rates by at least 100 basis points to make up for the costs associated with refinancing.

As most mortgages today hold an interest rate between 3% and 5%, interest rates hitting 4.8% by the end of the year would keep refinance originations from being a major player in the mortgage market.

However, while the share of refinances continues to drop, it will not fall to zero, Boesel claimed. This is because in 2017 about 200,000 refinances, or 10%, refinanced out of FHA and into conventional in order to shed the mortgage insurance. This share of mortgage refinances will continue to hold a place in the lending market, she predicted.

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