Despite recent reports of tight lending practices and insecurity over industry standards, it seems that 2012 will have more mortgage originations that previously expected.
According to an October press release from the Mortgage Bankers Association (MBA), the estimate for residential mortgage originations in 2012 has been upwardly revised to $1.7 trillion. The release also stated that the MBA predicts $1.3 trillion in mortgage originations in 2013, largely due to refinancing activity that is expected to spill over from 2012. The MBA also anticipates a jump in purchase originations, climbing to $585 billion in 2013, up from a revised estimate of $503 billion for 2012.
By contrast, refinances are expected to drop to $785 billion in 2013, down from a revised estimate of $1.2 trillion in 2012. The MBA’s chief economist Jay Brinkmann noted that the slowdown in refinancing activity could be due to mortgage rate increases. Although rates continue to remain close to historical lows, economic improvements have allowed banks to shift their rates slightly. The MBA’s original predictions forecasted strong origination activity in 2012 with refis dropping off as the rates gradually increased. Instead, the mortgage industry saw more refinancing in 2012 due to a combination of low rates and adjustments to the HARP and FHA programs.
Brinkmann was quoted as saying the following in the MBA press release:
“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. In contrast, we expect a 16% increase in purchase originations in 2013 over 2012, with every quarter in 2013 exceeding the same quarter of 2012.”
Brinkmann continued by saying that continued economic growth will drive the increase in purchase volume. The MBA expects to see an increase in owner-occupied sales financed with mortgages rather than cash purchases by investors, which had become more common in the recent past. They also predict an increase in new home sales and a slight increase in average home prices.
While mortgage interest rates may continue to shift upward in the coming months, the MBA says rates are likely to stay below 4% through the middle of 2013. Brinkmann says this is mainly due to ongoing purchases of mortgage-backed securities by the Federal Reserve under its QE3 program. According to Brinkmann, the Fed “has committed to buying $40 billion of agency MBS per month until the labor market shows significant signs of improvement.”
Unemployment is expected to remain around 8% until the middle of 2013, according to the MBA, with the figure falling to around 7.8% by the end of 2013. While this improvement is good news for the nation’s economic status, Brinkmann warns that the anticipated growth rate is still far below what is needed for a “robust” market.
As for the impending “fiscal cliff,” Brinkmann offered a pragmatic look at what the MBA considers the “most immediate threat.”
“While the fiscal cliff is the most immediate threat, it is at least one we can control,” Brinkmann stated in the press release. “The others are primarily international and pose longer-term headwinds for the US economy. These include the ongoing economic slowdown in the European economies and how the fiscal problems in southern Europe will be resolved; the slowdown in growth in China and the cascading impacts on Japan, Taiwan, Australia, New Zealand and the countries of southeast Asia; and the prospects of a war involving Iran and Israel and the response of the other countries in the Middle East and the impact on world oil prices.”
To read the entire press release from the Mortgage Bankers Association, please visit this link: http://www.mbaa.org/NewsandMedia/PressCenter/82414.htm