WASHINGTON (4/15/14)--Home purchases will bloom in the coming months, while refinances will continue to wilt, Freddie Mac economists projected in a blog post last week.
In the first quarter of 2013, 71% of mortgage originations came in the form of refinances, according to Freddie Mac, but that number dropped to 51% by the end of 2013. The Mortgage Bankers Association (MBA) reported last week that refinances stood at a five-and-a-half-year low (News Now April 10).
Picking up the slack, home purchases sprouted by 20% last year, and that may only have been the beginning.
"Looking forward, our Chief Economist Frank Nothaft anticipates that more than 50% of the mortgage market will be originations for home purchases by the end of 2014," the blog post said (FreddieMac.com April 10). "A purchase dominated market hasn't happened in 14 years--not since 2000."
In addition to higher numbers of home purchases, the housing market in general appears to be gaining strength.
Homes sales have risen 13% since they reached their lowest point during the recession. Freddie Mac expects home sales to increase about 3% this year.
Housing starts, or houses on which construction has started, also have increased, up 50% since their trough during the economic downturn. Analysts expect nearly 20% growth in this sector in 2014.
Finally, housing prices have climbed 16% since reaching their bottom, and will continue to move higher by about 5% over 2014. Though, house prices remain below their 2006 peak levels.
Meanwhile, mortgage originations in general could drop to historically low levels this year, as the MBA pulled down its initial 2014 forecast Friday, now predicting the slowest year in 14 years for the industry (American Banker April 11).
If the association's experts are correct, the $1.065 trillion in single-family loans would be a 39% decrease from 2013.
"You would have to bank on a really big second half of the year for originations to come in at the 2013 level," Joel Kan, MBA director of economic forecasting, told American Banker.