Mortgage lending for home purchases is expected to increase by 9 percent next year, but overall lending is still expected to be down by nearly a third due to a continuing decline in refinance activity.
New projections from the Mortgage Bankers Association (MBA) predict that home purchase lending will rise to $723 billion in 2014, up from $661 billion this year, followed by a similar increase to $796 billion in 2015.
"We are projecting home purchase originations will increase in 2014 due largely to gains in home sales and home prices," said Jay Brinkmann, MBA chief economist. "We expect to see a decline in the share of sales paid for with cash, and higher average LTVs (loan-to-value ratios, i.e., smaller down payments) on purchase mortgages, due to the rise in home prices."
At the same time, the MBA projects that overall mortgage lending will plummet from $1.7 trillion this year to $1.2 trillion in 2014, owing to an expected 57 percent drop in mortgage refinancing due to higher rates.
Small lenders to claim more business
Independent mortgage lenders are expected to account for a bigger share of the market next year, with the MBA predicting that 40 percent of all purchase loans will be handled by independents in 2014, up from 36 percent this year.
Mortgage rates for 30-year fixed-rate loans are predicted to top 5 percent in 2014, putting an end to the refinancing frenzy of recent years. A further increase to 5.3 percent is expected by the end of 2015, although that figure would still be quite low by historic standards.
The higher rates mean that homeowners seeking to borrow against their home equity will more likely turn to regular home equity loans or lines of credit, rather than cash-out refinancing, which would change the rate on their entire loan.
Overall, the MBA is predicting relatively weak economic growth over the next two years, with rates of 2.4 percent in 2014 and 2.7 percent in 2015, with growth restrained in part due to uncertainty over the direction of government spending and tax policies.