Big Decline in Mortgage Refinancing Predicted

By:: Kirk Haverkamp | February 09, 2010

Mortgage refinancing in 2010 is expected to total less than half that of 2009, according to newly released forecast by the market research firm iEmergent.

The company’s updated Mortgage Volume Forecast predicts that 2010 mortgage refinancing will range between $531 billion and $643 billion, representing a decline of 52 percent or more from 2009. The past year saw an explosion in mortgage refinance activity after interest rates fell to record lows following aggressive steps by the Federal Reserve to reduce the cost of lending.

Mortgages for home purchases are also expected to decline, by 4.8 percent, to about $557 billion, producing a total mortgage volume of $1.09 trillion to $1.20 trillion. The company predicts an approximately 50/50 split between mortgage refinancing and home purchase mortgages over the coming year, in contrast to 2009, when refinancing made up as much as 85 percent of all newly written mortgages during some weeks.

"Lenders can expect to see spurts of increased mortgage activity as individual households act on low rates, stimulus efforts and/or their personal situations, but elevated volumes will be unsustainable and will diminish over time as the remaining household pools shrink faster than they can be replenished," said Dennis Hedlund, president of iEmergent. "Consumers are saving more, wary of banks and worried about jobs and earnings stability."

The report predicted the mortgage and banking industry will face rising interest rates and a continued increase in delinquencies and foreclosures in 2010, along with continued high levels of unemployment, tightened lending standards and unstable home prices. As a result, the forecast expects home financing opportunities to remain sluggish in 2010.

“Mortgage lending is currently standing on weak and shifting sands,” the report said. “The sluggishness of housing and home financing, which appeared to have reached its bottom nadir in 2009, will remain stuck in a low and shaky trough in 2010.”

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