A whopping $3 trillion worth of mortgages will be written during this year, reports the Mortgage Banker’s Association of America. If the MBA is correct, this year’s total will eclipse last year’s record-breaking origination volume by more than half a trillion dollars. A full 65% of that $3 trillion will stem from mortgage refinancings.
"We knew that originations had been strong for the first half of the year because rates had remained at very low levels. However, we had been expecting the refinance market to dry up as increased economic activity in the second half of the year cause interest rates to increase," says the MBA’s chief economist, Doug Duncan.
The Federal Reserve’s announcement last week that deflationary pressures may be at work on the economy suggests to Duncan that deflation has moved from being "a theoretical consideration to an active policy issue." Those in the market may be interpreting this announcement as proof that the Fed will lower short-term interest rates. Duncan says that such an outcome would eventually push long-term rates lower through the open-market purchase of bonds.
"We have also seen mortgage spreads tighten relative to Treasuries, further decreasing rates," adds Duncan.
As of last week, the MBA found that the average 30-year-fixed-rate mortgage had fallen to 5.27% with 1.43 points. Meanwhile, says Duncan, Freddie Mac’s survey posts the average 30-year rate at 5.45% with 0.6 points.
The refinance wave is so strong that many people who refinanced as recently as six months ago are doing so again. "Absent any signs of inflation or a resurgence in the economy, rates should remain low enough to continue the current refinance wave to the point where we should hit $3 trillion for the year," says Duncan.
The MBA is still projecting that purchase originations, which are mortgages uses to purchase a home, will also set a record this year at more than $1 trillion.