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Mortgage Bankers Foresee Refinance Market Downturn
Thursday, October 22, 2015 6:40 AM

The Mortgage Bankers Association expects mortgage originations to drop in 2016 as the refinance market dries up, even as mortgages taken to purchase homes increase.

The industry group forecasts total mortgage originations to drop to $1.32 trillion in 2016, down from an estimated $1.45 trillion in 2015. Refinance originations are forecast to fall by one-third, to $415 billion, while purchase originations are expected to increase by 10 percent to reach $905 billion.

Improvements in the job market, rising wages, and more household formation will help drive mortgage originations for homebuyers. But interest rate actions from the Federal Reserve in December 2015 or January 2016 are likely to make refinancing less attractive to homeowners.

MBA's projection for overall economic growth in the U.S. is 2.3 percent in 2016 and 2017. China's downturn is expected to dampen global economic growth and reduce demand for American manufacturing.

Mortgage originations are expected to fall further in 2017 as interest rates rise. MBA expects total originations to be about $1.31 trillion, while the interest rate for a 30-year fixed mortgage is forecast to reach 5.2 percent.

About half of existing mortgages have an interest rate of 4.0 percent or below, which makes refinancing in an environment of rising rates a tough sell. MBA anticipates refinance originations dropping to $331 billion in 2017, compared to an estimated $630 million for 2015.

Source:  SNL Financial News, 20 October 2015