Reasons Behind Decrease in Mortgage Originations

Filed under: Freddie Mac, Market Comentary

mortgage originationsAccording to a recent post by Freddie Mac analysts, home buyers are not taking advantage of lower interest rates, as indicated by a decrease in mortgage originations.   These analysts identified three main factors for this decrease.

The first reason is that the refinance boom has slowed. Mortgage applications for refinancing have actually dropped by about 60% from 2013 to 2014. And, according to Freddie Mac, these refinance applications will probably drop an additional 50% from 2014 to 2015. As mortgage rates go up, as they are expected to do, home owners will have less incentive to refinance.

The second reason for the decrease in mortgage originations is due to home sales being down. In the first six months of 2014, sales of existing and new homes fell about 5% compared to the first six months of last year. Freddie Mac explained, “A period of higher mortgage rates, a harsh winter, and slower economic growth compared to a year earlier contributed to the slowdown.”

The final reason centers on the fact that more homes are being bought with the buyers paying cash. According to the Freddie Mac post, the number of people who took out a mortgage to buy a home is down compared to last year. And, during the first six months of 2014, “all-cash” home sales were up to 33% compared to 31% last year. However, Freddie Mac said, “With rising home values and fewer distressed homes coming on the market, expect the available inventory for all-cash buyers to trend down in the coming year.

To turn the trend of the decrease of mortgage originations to an increase, Freddie Mac explained that the key will be “sustained economic growth and jobs.”

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

I have a few other personal thoughts on the sales slow-down, so feel free to give me a call if you’d like to discuss them!




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