Aug 26

Reasons Mortgage Demand Is Dropping

Reasons Mortgage Demand Is Dropping

 

Reasons Mortgage Demand Is Dropping. Image courtesy of marcolm / FreeDigitalPhotos.net

Reasons Mortgage Demand Is Dropping. Image courtesy of marcolm / FreeDigitalPhotos.net

Fixed-rate mortgages sank to the lowest average of the year last week, yet mortgage origination activity remains lackluster. Why aren’t more home buyers taking advantage of the lower borrowing costs?

In a recent blog post, Freddie Mac analysts point to three main factors behind the decrease in mortgage originations:

  1. The refinancing boom has ended. From 2013 to 2014, mortgage applications for refinancings have fallen about 60 percent. Freddie Mac projects refinance applications will drop by another 50 percent from 2014 to 2015. When mortgage rates rise—as they are expected to soon—borrowers will have less incentive to refinance. Applications for home purchases are not expected to be able to fill the void from the refi boom.
  2. Home sales are down. Sales of existing and new homes have fallen about 5 percent during the first six months of 2014 compared to the first half of 2013, according to Freddie Mac. “A period of higher mortgage rates, a harsh winter, and slower economic growth compared to a year earlier contributed to the slowdown,” researchers explain.
  3. More buyers are paying cash. The number of borrowers who took out a mortgage to purchase a home is down compared to last year, but that could be due to more buyers using cash. In the first six months of this year, all-cash home sales were up slightly from 31 percent to 33 percent, according to National Association of REALTORS® data. Yet, “with rising home values and fewer distressed homes coming the market, expect the available inventory for all-cash buyers to trend down in the coming year,” researchers note.

Freddie Mac researchers say the key to an increase in mortgage origination activity will be “sustained economic growth and jobs.”

“Overall, recent economic and employment improvements should help bolster household formation and contribute to gains in construction, home sales—and also mortgage originations,” Freddie Mac researchers note. “However, even with these improvements, expect new and refinance mortgage origination volume for this year to be the lowest since 2000 at about $1.15 trillion.”

Source: Freddie Mac

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