Home loan production is expected to come in below $1 trillion for the 2011 calendar year, according to figures released this week by the Mortgage Bankers Association (MBA).
If the trade group's projections pan out, it will be the industry's lowest level of home lending volume in 14 years. MBA estimates that we'll end 2010 with $1.4 trillion in mortgage originations.
MBA's analysts say next year's drop will be driven by a decline in refinance originations, but the industry will see an increase in purchase originations. They also warn that the economy will grow at a slow pace, with no significant job growth until late next year.
The unemployment rate is forecasts to increase from the current level of 9.6 percent to 9.9 percent by the first quarter of 2011, end 2011 at 9.5 percent, then fall to 8.7 percent by the end of 2012. MBA says mortgage delinquency and foreclosure rates should track this delayed, downward trend in the unemployment rate.
The organization's economic team says purchase originations for 2010 are expected to be $480 billion, about 28 percent below the 2009 level of $665 billion. They should rise about 30 percent in 2011, as existing home sales recover and home prices stabilize, and should rise again in 2012 to $877 billion.
Total existing home sales for 2010 will be around 8 percent lower than in 2009, despite a boost to sales in the first half from the homebuyer tax credit program, MBA says. Sales of previously owned homes are projected to increase modestly in 2011, increasing by a little less than 2 percent, before increasing by about 16 percent in 2012.
The trade groups says the Federal Housing Finance Agency's home price measure will continue to decline before starting a reversal in early 2012, but will vary by state and home value. Median home prices should increase in 2011 relative to 2010, and the markets for higher-priced homes should continue to thaw. Purchase-only indexes like the Case-Shiller gauge are expected to show stabilization next year.
In contrast to the boost in purchase originations, mortgage refinances are expected to fall steadily as mortgage rates gradually increase throughout 2011 and 2012.
MBA says refinance originations will end 2010 at $921 billion, a decrease of 31 percent from $1.3 trillion in 2009. Refinance activity is projected to decrease by 60 percent in 2011 to about $370 billion as mortgage rates increase and the pool of eligible borrowers shrinks, and fall further to $310 billion in 2012.
The organization says it expects ""the refinance share of originations should fall from 66 percent in 2010 to 37 percent in 2011, and then 26 percent in 2012.""
Fixed mortgage rates are expected to average about 4.4 percent in the fourth quarter of 2010, increase to 5.1 percent by the end of 2011, and head towards 5.7 percent in 2012.
Jay Brinkmann, MBA's chief economist and SVP for research and economics, said, ""Various factors are driving our rate forecast. The sluggish economy, weak private demand for debt financing, and low inflation are keeping downward pressure on rates. Offsetting that, however, is the large increase in government financing needs and the impact the weakening dollar has on foreign investors in U.S. debt.""
There is much speculation surrounding what the Federal Reserve will do in terms of additional monetary policy actions to stimulate growth and influence interest rates.
""At this point, we think the most likely scenario is that the Fed will purchase additional Treasury securities,"" Brinkmann said, ""butÃ¢â‚¬Â¦the market has already priced these anticipated actions into today's rates. In other words, absent some blockbuster post-election announcement from the Fed on November 3rd, we do not expect to see a further decline in [mortgage] rates.""