Months of record low rates have lured buyers, and even more so, refinancers, to apply for new loans. But the Mortgage Bankers' Association expects the tide in refinancing applications to turn dramatically.
As the year wraps up, rates continue to dwell in enticing territory. The 30-year fixed rate averaged 3.32% last week, barely up from 3.31% the week prior, according to data released by mortgage giant Freddie Mac on Thursday. For perspective, it averaged 4% a year ago.
As you might expect, many who were able to have already taken advantage. Changes in refinance applications have been positive year over year for the past 11 months, coinciding with the HARP 2.0 (Home Affordable Refinance Program) date and a 12-month period in which mortgage rates were averaging just under 4%, according to MBA. But MBA economists expect refinancing applications will peak in the final quarter of 2012, and will fall 76% from Q4 2012 to Q4 2013.
"Interest rates are the number one driver of refinances and, as rates have been near record lows for some time and bottomed out recently at about 3.5%, we have seen sustained high [refinancing application] volumes," says Matthew Robinson, an MBA spokesman.
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MBA forecasts that rates will begin to rise, with the 30-year fixed rate reaching around 4.5% by the end of 2013, due to economic and job growth as well as deficit pressures. Although the Federal Reserve will still be buying mortgage-backed securities, MBA expects the end of the program will come into view and inspire some to move in advance, putting upward pressure on rates.
As rates rise, refinancing application volume is expected to drop considerably. MBA forecasts the total dollar amount of refinance originations will fall from over $1.2 trillion in 2012 to $750 billion in 2013.
As of last week, refinancing applications accounted for 81% of the total application volume. By the fourth quarter of 2013, MBA forecasts that refinancing will only account for 40% of home mortgage application volume. And it expects it to be fairly even across 2014, averaging 33% of volume.