Home-Purchase Mortgages To Reach Record High
July 15, 2002
MBA Releases Mid-Year Forecast
Washington, D.C.(July 12, 2002)- The volume of mortgages made for people to purchase homes will reach a record high of almost $1 trillion this year, according to the mid-year mortgage finance forecast [pdf] issued today by the Mortgage Bankers Association of America (MBA).
The total dollar volume of mortgages for home purchases is expected to reach $989 billion by the end of 2002, up from $873 billion in 2001.
The total volume of mortgages, which includes refinancings, is projected to decrease 16 percent from last year?s record total, $1.7 trillion in 2002 versus $2.0 trillion in 2001, according to MBA.
The surge in the home-purchase mortgages is being driven by a continued torrid pace of home purchases and higher prices and mortgages on those homes. About 6.5 million single-family units are expected to be sold this year, a 5 percent increase over 2001.
One factor driving the home-purchase market is that rates have remained low. According to MBA?s Weekly Mortgage Applications Survey, the average 30-year contract rate for the first half of 2002 was 6.8 percent. It reached a peak of 7.15 percent in March and has fallen since then to 6.4 percent, in the most recent survey.
"Mortgage rates have remained low partly due to the sluggishness of the economy and a lack of demand for long-term money. In addition, the prices of mortgage-backed securities have been very high because investors have been looking for alternatives to falling stock market prices. High prices mean lower rates, and these lower rates are being passed on to borrowers," said Doug Duncan, MBA?s senior vice president and chief economist
Duncan said he expects the Federal Reserve will not increase short-term rates until at least November. Combined with modest expectations for economic recovery and low expectations of inflation, any increases in mortgages rates through the end of the year are expected to be moderate.
While mortgage rates have been low since last September, MBA said the rate of refinancings remains very strong, due in part to cash-out refinancings.
"The average loan size for a refinancing transaction reached a record $215,000 in June, up from $173,600 a year ago and $181,300 in January," Duncan said. "We suspect that much of this increase is to people wishing to employ the equity in their homes for other purposes through cash-out refinancing." (See chart)
Duncan said that the level of home-purchase mortgages will continue to support the economic recovery. "It is estimated that home purchasers spend an additional $3,000 to $5,000 in the first year after the purchase on products such as washing machines and other durable goods."
Source: Mortgage Bankers Association