Another Big Year For Mortgage Activity

January 29, 2002

Mortgage Industry Economist Predicts $1.4 Trillion In Loan Originations This Year

By Marcie Geffner
Inman News Features

Mortgage loan origination activity is likely to decline ever so slightly this year, but the lower level is only relative to last year?s tremendous boom in residential lending, according to a forecast from the Mortgage Bankers Association of American.

The forecast anticipates $1.4 trillion in total residential purchase and refinance mortgage originations this year compared with an all-time high total of $2.3 trillion last year. And the market is expected to swing from 61 percent refinancing of existing obligations to 63 percent home-purchase financing, according to the mortgage bankers? group.

"We are looking for $1.4 trillion in total mortgage originations in residential real estate, of which about 63 percent will be purchase originations for people buying new or existing homes," said MBA Chief Economist Dr. Douglas G. Duncan at a press conference in Washington, D.C., on Thursday. "2001 was an all-time year for total production with about $1.14 trillion in refinances and $900 billion in purchases. We expect 2002 to be about $900 billion in purchases."

The decline in lending activity will be attributable to slightly higher interest rates and fewer home sales, Duncan indicated.

Interest rates for 30-year fixed-rate mortgages are expected to hover at 7 percent to 7.1 percent in the first half of the year, then creep somewhat higher.

"We see some slight increase in (mortgage interest rates) as the economy picks up in the second half of the year--certainly not a dramatic run up, but just enough to curtail the refinances from the current level. Purchase applications are at a very high level at the present time," Duncan said.

The forecast projects existing home sales of 5.05 million this year, a decrease of 3 percent compared with the all-time record of 5.22 sales last year. New home sales are pegged at 881,000 for 2002 compared with an all-time high of 903,000 in 2001, again a decline of about 3 percent.

Duncan said strong demand for housing due to demographic factors combined with such supply-side constraints as growth controls and environmental costs that "retard production of housing" mean "demand is likely to grow faster than supply, which will support the strong price increases we?ve seen in the housing market and the equity-building function for householders."

And that dynamic means housing will continue to be a plus for the economy overall this year. However, constraints on building more housing are likely to raise affordability as a policy issue over the next couple of years, Duncan added.

The strong housing sector delayed the onset of the current recession and has kept the economy from sinking deeper into the recession, Duncan said, in part because low interest rates combined with appreciation in home values positioned households to tap their home equity wealth. Homeowners who refinanced their mortgages with cash out plowed an estimated $50 billion of what was once home equity into consumer consumption during the 12-month period ended Sept. 30, 2001, Duncan said.

Homes sales contributed to the effect as well. New homeowners typically spend $6,500 to $8,500 in additional housing-related services during the first year of home ownership or about $3,500 to $5,500 more than the typical $3,000 spent annually on such services for homes bought more than one year previously. The sum total last year was more than $27 billion of home purchase-related expenditures pumped into the economy, Duncan indicated.

The recession "would have been significantly greater" without that $75 billion of housing sector economic stimulus and "we anticipate more benefits from housing this year," Duncan said.

Bottom line, housing is a crucial economic sector and a favorable housing policy is crucial to a strong recovery, according to the mortgage bankers? association, which has 2,800 member companies.

"The median household still has more wealth in their home than they do in the stock market," Duncan concluded. "Going forward, we anticipate that attention to housing matters and the growth of that equity (will be) critical to support economic activity."

Copyright: Inman News Service

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