The Mortgage Bankers Association (MBA) is forecasting that mortgage rates will likely rise above 5% next year and average 5.3% by the end of 2015. That would mark a significant increase... some 50-75 basis points higher than where they are as of this writing depending on the type of loan product and borrower qualifications. How might this affect Charlotte real estate transactions? Read on.
The MBA expects that the Federal Reserve will decide to taper its $85-billion per month bond-purchasing program in early 2014 and end it altogether in September 2014. The Fed’s bond buying program has been keeping mortgage rates low. The Fed has hinted in recent months that it will soon be winding down the program and the latest October Fed minutes have put this prospect again squarely in focus.
As a result, refinancings will continue to drop, and borrowers seeking to tap the equity in their homes will be more likely to rely on home equity seconds rather than cash-out refinances. The MBA expects home purchase applications for mortgages to rise 9% next year, following expected continued home sales and price increases.
However, the MBA projects that overall mortgage originations will drop 32% in 2014, as the number of refinancing applications post a large drop in the new year due to expected rising interest rates. While refinancings make up the bulk of home applications today, that trend is expected to reverse next year. Purchase loans are expected to make up 60% of originations next year compared to about 38% this year.
Home purchase originations are expected to increase in 2014 due largely to gains in home sales and home prices. Also projected is a decline in the share of sales paid for with cash, and higher average loan-to-values on purchase mortgages, due to the rise in home prices.