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MBA Forecast: Housing to Recover, Refinancing to Fade

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Multiple data points over recent months have suggested a housing market that’s recovering. Earnings from government-controlled mortgage heavyweight Fannie Mae on Tuesday offered the latest support for that observation; Fannie turned a profit of $17.2 billion for 2012, vs. a net loss of $16.9 billion for 2011. Its 2012 profit marks its biggest ever gain and the first in six years. Fannie said it was able to pay $11.6 billion in dividends to the U.S. Treasury Department last year and that it expects to remain profitable "for the foreseeable future."

Historically low mortgage rates have been attracting buyers and, particularly, refinancers in recent years. So far in 2013, the 30-year rate is up 0.23 -- at 3.57% last week, from 3.34% in the first reading of the year. It’s stayed above 3.5% since January. For perspective, even at 3.57% it’s still down from 3.99% a year earlier.

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The Mortgage Bankers Association, which updated its forecast in late March, expects rates to climb to as high as 4.3% by the end of 2013. That’s just slightly softer than its forecast at the end of 2012 for a rise to 4.5%.

MBA told Yahoo! Finance in Q4 of 2012 that, although it expected the Federal Reserve would still be buying mortgage-backed securities in 2013, it believed the end of the program would come into view, putting upward pressure on rates.

The Federal Reserve, in its most recent meeting, said it would continue to expand its balance sheet with monthly mortgage- backed security and Treasury purchases. But Chairman Bernanke also indicated the Fed may begin to vary the pace of purchases, toning them down as signs of economic strength emerge.

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As rates rise, MBA expects refinancing mortgage origination to fall by 33% (in dollars) in 2013 over 2012, and another 60% in 2014 over 2013.

But the impact is unlikely to hit demand for new home purchases, according to its forecast. MBA raised its forecast for both new and existing home sales, “given more positive data of late.” It sees mortgage origination for new purchases up 42% over the two-year period and is looking for new home sales and existing home sales to rise by 12% and 31%, respectively, over those same two years.

MBA also expects an uptick in home prices to continue as potential homebuyers look to take advantage of rates before they rise. It sees the FHFA Home Price Index rising 4.1% and 4.5% in 2013 and 2014, respectively.

If its forecasts are correct, at the end of 2013, we will see higher home prices, higher mortgage rates, and more new and existing home sales – basically a more robust housing recovery – but the refinancing wave will have passed.

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