The mortgage market appears to showing signs that it will take
the shape predicted by many analysts at the beginning of the year.
If you recall, the forecast was for the home-purchase side to
dominate as refinances tapered off because of rising interest rates. One
half of the scenario, however, hasn’t yet come to pass.
Influenced by Brexit — the United Kingdom’s decision to leave the
European Union — global volatility and the Federal Reserve’s reluctance to
raise short-term rates, mortgage rates have hovered near historic lows. This
has kept refinancing activity in play for homeowners deep into 2016, an outcome
that the economists weren’t betting on in January.
Recent data, however, suggests that some steam may finally be
going out of the refinance market. For the week ending July 22, refinance
applications dropped off sharply, according to the Mortgage Bankers Association
(MBA). Interestingly, mortgage rates didn’t have to come up that much — just 3
basis points to 3.56 percent for a 30-year fixed mortgage — for refinancing
activity to fall dramatically.
This indicates that the pool of people who haven’t already
refinanced is getting thinner, and rates don't have to rise much to knock a lot
of people out of consideration.
"Despite the 30-year fixed mortgage rate being almost 50
basis points lower than a year ago, refinance activity has been extremely
sensitive to rate increases as the pool of borrowers who can benefit from
refinancing continues to diminish," MBA Chief Economist Mike Fratantoni
This is not to say that refinancing is in its death throes yet.
According to MBA, refinancing applications still accounted for more than 60
percent of applications in recent weekly surveys. Other studies, however,
suggest that refinancing is giving way to a purchase-dominated market.
Ellie Mae reported that the refinance share dropped three
percentage points in June, to 34 percent of all closed loans. The refinance
share of overall applications has dropped for five consecutive months from a
high of 47 percent in January. Ellie’s data, however was compiled before the
July surge in refinances following the Brexit.
Analysts appear to be right in their prediction that the housing
market would flower in 2016.
The annual pace of home sales is at a nine-year high, and sales
of newly built homes are at an eight-year high, data released over the past
week shows. Existing-home sales are running just 30 basis points below the full
market potential of 5.66 million sales annually, according to modeling by First
Recent data also indicates that traditional buyers now make up
two-thirds of purchases, and investor activity has fallen back to the normal
levels. This is good news for mortgage originators because traditional buyers
tend to need mortgages, whereas investors often use cash.