Average rates on 30-year fixed-rate mortgage expected to jump above 5%
ATLANTA (MarketWatch) — Mortgage rates may be as low as they’ll get — rates are on course to rise, slowly moving toward 5% by the end of next year, according to the Mortgage Bankers Association’s economic forecast, released Tuesday at the group’s annual convention here.
The group predicts rates on the 30-year fixed-rate mortgage will average 4.4% in the fourth quarter of 2010, increasing to a 4.7% average in the first quarter of 2011, and climbing to 5.1% by the end of next year. That’s barring any “blockbuster” announcement from the Federal Reserve next month, said Jay Brinkmann, chief economist of the MBA.
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The Fed has said it could take more policy actions to stimulate growth, and Brinkmann said that’s likely to come in the form of an additional purchase of Treasury securities. But the market has already anticipated that, and the move has already been priced into current rates, he added.
Brinkmann said he expects a pickup in purchase originations next year, but 2011 volume for mortgages to buy a home will still only be roughly at its 2009 level. Refinance business, however, is expected to drop next year, as mortgage rates begin their rise from record lows.
At the conference, many mortgage bankers commented that business right now is doing well, due mainly to high refinance volume in the low-mortgage-rate environment. A large concern for them, however, has been what happens when all the refinance business dries up.
“If [interest rates] do bump up a bit, it’s a big concern on the refinance side,” said E. Todd Chamberlain, executive vice president for Regions Financial Corp., speaking on a panel at the convention. Those who have recently refinanced may be in the same homes — with the same loans — for a long time, unwilling to give up their very low rates by moving or refinancing, he said.
Total mortgage volume is expected to be nearly $1 trillion in 2011, down from an anticipated $1.4 trillion this year and nearly $2 trillion in 2009.
The industry is expected to originate an annual $480 billion in purchase mortgages by the end of this year and $626 billion next year; it’s expected to originate $921 billion in refinance mortgages by the end of this year, which will shrink to $370 billion next year.
The MBA forecast predicts home sales will rise slightly next year, after dropping in 2010 from 2009 levels.
Sales of existing homes will finish 2010 about 8% lower than last year, but sales should rise 2% next year and 16% in 2012. And sales of new homes will finish 2010 13% lower than 2009, but sales should rise from that low base by 20% next year and 40% in 2012.
“We also see some upward indication on prices” in many markets, Brinkmann said. Nationally, prices are expected to decline 1% next year, but that decline is heavily weighed down by severely troubled housing markets, including those in Florida and parts of California, he said.
See the latest home-price data from Case-Shiller.
Brinkmann said that there has been a large decline in household formation throughout the country, with many adults who would rather live on their own sharing a roof with parents or roommates due to financial reasons. Others might be marking time in crowded apartments, though their families are increasing in size and they’d rather move to a larger space, he said.
Those people might relocate as soon as the economy improves and more jobs are created: “There is tremendous pent-up demand that is going to respond quickly to job growth,” he said.
Offsetting that, however, are mobility trends. Homeowner mobility is down, partly because of diminished equity in homes and now also because of low interest rates — it’s now going to be more difficult for people to move when it means they will be giving up a 4.5% interest rate on their mortgage, he said.
In its forecast, the MBA anticipates the unemployment rate will increase to 9.9% in the first quarter of 2011. The rate should decrease to 9.5% at the end of next year and to 8.7% by the end of 2012.
The forecast predicts real GDP growth of 2.2% in 2010, 2.1% in 2011 and 3% in 2012.