Origination volume will probably go up in 2015 – but borrowers might want to refinance now, since rates will probably hit 5%.
That's according to Michael Fratantoni, vice president and chief economist for the Mortgage Bankers Association. Speaking at the MBA's annual conference in Las Vegas Tuesday, Fratantoni said that tumult in Europe would probably keep rates low in the near term, but the inevitable end of quantitative easing and continued strengthening of the economy meant that rates would rise eventually. Still, Fratantoni forecasts a 7% spike in origination volume for 2015.
The current economic climate means lower rates for now – and a good opportunity for refis, he said.
“You've all seen the news. It's a really tumultuous situation, an that's going to put downward pressure on mortgage rates,” he said. “…We're not going to have a refi boom, but it's going to be higher than we otherwise would have forecast.
“There's a lot to worry right now,” Fratantoni added. “What country is Putin going to invade next? Is the Middle East going to turn into something like it was in the Middle Ages, with the Islamic caliphate stretching across the region? A set of sanctions have been put on Russia. The fallout from that is that countries that export to Russia have seen a pretty significant hit to their economies. That's what's led to a significant drop in rates recently – the concern that Europe is just not getting out of this fix.”
But rates will eventually go up, he warned – and one of the factors spurring that rise will be the end of the taper. Fratantoni said he expects the Fed will decide to cease new bond buys at its meeting later this month, even if the agency doesn't start selling the bonds it's already acquired right away.
“We expect at their next meeting, they'll say, 'We're done adding to this portfolio,'” he said. “But they've said that they'll keep that $4.2 trillion (in QE bond buys) on their balance sheet for a considerable period of time.”
When the Fed does start selling the bonds it purchased during QE, they'll taper their portfolio slowly, he predicted.
“This is the gorilla in the room. They can't do it all at once,” he said. “They have to take baby steps.”
So what does that mean for rates?
“We're forecasting that rates on the 30-year will be just brushing up against 5% by the end of next year” and hit 5.5% in 2016, Fratantoni said.
But even with rising rates, Fratantoni predicts an increase in originations – especially as rent prices, already high, continue to spike.
“Really the only increases in prices we're seeing are in the housing market. Rents, for instance, are going up by about 3% – but it's not hard to find markets in the country where rents are going up faster than that,” he said.
As the cost of renting continues to rise, Fratantoni predicts that more and more people will consider buying a home.
“We think the third or fourth time they get that substantial rent increase, they might be willing to look at buying a home – especially if it's the same amount of money coming in,” he said.