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Mortgage Originations Expected To Fall In 2017

Mortgage Originations Expected To Fall In 2017The mortgage marketplace is doing better than you think. Despite all the complaints about a “tight credit box” and processing delays, it turns out that Americans are doing pretty well in the financing department.

Figures from the Mortgage Bankers Association estimate that lenders nationwide will originate mortgages worth $1.89 trillion this year, a big jump from $1.68 in 2015. For 2017, the MBA estimates the mortgage originations will drop to $1.63 trillion.

Yup, mortgage originations in general are expected to fall next year but that’s not surprising. Interest rates have been cruising around 3.5 percent for most of this year so once owners have financed or refinanced at the current rate they have no reason to refinance again unless rates fall significantly, say into the 2 percent range. The MBA estimates that refinancing activity will fall by 40 percent in 2017 while purchase money mortgages will go up 11 percent.

And what about mortgage rates?

“Historically low, and in some cases negative, rates around the world continue to put downward pressure on longer-term US rates, keeping them lower than the domestic growth environment would otherwise warrant,” said Michael Fratantoni, MBA’s Chief Economist and Senior Vice President for Research and Industry Technology. “We expect that the 10-Year Treasury rate will stay below three percent through the end of 2018, and 30-year mortgage rates will stay below 5 percent over the same period.”

The view here is a different.

First, pushed by the big banks, the Fed is likely to raise bank rates once again, perhaps in December or early 2017. Such an action by the Fed will force general bank rates higher but what about mortgage rates?


The Fed does not control mortgage rates, about half of all home loans come from nonbanks, and it’s worth mentioning that after the last Fed rate hike in December 2015 mortgage rates actually fell. In fact, Freddie Mac says 30-year prime mortgages were priced at 3.47 percent last week, well-below the 3.97 percent in effect just before the Fed hike.

Mortgage Originations & World Finance

Second, the odds of the world economy doing better in 2017 are pretty much zero. Think about it: Will Brexit help the Europeans? Will there be peace in the Middle East? Will the ongoing oil surplus end? How is Japan doing? Russia?

Third, depending on which oracle you consult, about $10 trillion to $15 trillion is now invested worldwide with negative interest rates. Bill Gross, with Janus Capital, said in September that “negative yielding bonds are not assets — they are liabilities.”

Capital worldwide will flow to the places which offer the best combination of risk and reward, meaning that any increase in US mortgage rates is likely to be short-lived as cash worldwide starts heading our way.

Fourth, in the US banks have deposited “excess reserves” worth $2.157 trillion with the Fed. By taking this cash out of the retail banking system rates are being artificially pushed up.

So 2017 looks like it will be a repeat of 2016 with mortgage rates near historic lows if our political leaders decide to cooperate with one another. If they don’t then all bets are off.

(Photo courtesy of Daniel Beilinson)

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