The housing recovery, chugging along for more than a year, is about to pass a milestone.
For the first time since 2008, the total dollar volume of loan originations for people buying a home will surpass the refinancing loans, Nomura Equity Research notes, citing industry figures.
Meanwhile, the volume of mortgage loans is falling. That could affect mortgage lenders such as Wells Fargo (WFC) and Bank of America (BAC).
As a housing recovery continues, homebuyer loans are expected to grow at a modest pace. But that's offset by a rapid drop in refi loans, which are on the decline because so many people already have refinanced to lock their mortgages in at historically low interest rates.
Lending Shift Approaches Mortgage Bankers Association figures show there was a steady buildup in total loan originations last year through Q4, when the value of U.S. mortgage loans topped at about $500 billion.
The MBA estimates that originations fell a bit in Q1 this year and sees that trend continuing through the end of 2013, when it expects the combined total of purchase and refinance mortgage originations to level off at a little over $250 billion.
Purchase mortgages are forecast to overtake refinancings in the third quarter, hitting $165 billion vs. $141 billion in refis. Purchase mortgages, which would then be 54% of all originations, haven't outstripped refis since Q4 2008. They comprised barely over a quarter of originations in Q1 this year, according to MBA estimates.
For banks and other mortgage lenders, as the total number of mortgages falls, "mortgage revenue will decline from the 2012 level," Nomura analyst Keith Murray told IBD.
Still, a scarcer supply of homes in the pipeline and low mortgage interest rates mean that home purchases will likely keep rising.
"As mortgage activity for purchases picks up, that should coincide with a healing economy and therefore general loan demand should pick up," Murray said.
Wells Fargo said on its Q1 call, "We expect volumes to remain strong and we want to make sure we're adequately staffed (for the purchase market).
Nomura has a buy rating on Wells Fargo and a neutral rating on BofA.
Impact On Builders The switch to more mortgages for home purchases instead of refinancings reflects housing market activity that could help builders such as Pulte Group (PHM), Lennar (LEN) and D.R. Horton (DHI).
Homebuilders could use a lift after a rough patch the past few months on rising costs for lumber and other building materials and, for some of them, a tough time finding buildable lots.
Rising demand for homes amid the scarcity of existing homes for sale could also boost smaller, highly rated homebuilder Standard Pacific (SPF) and newcomers Taylor Morrison (TMHC), which went public this month, and TRI Pointe Homes (TPH), which had its IPO in January.
Overall, stocks in IBD's Building-Residential industry group fell nearly 2% Thursday. The Banks-Money Center group slid almost 1%, as did the S&P 500 index.