Ask the expert

Rates are up this year and refinances are down. I had a good spring, but now purchases seem to be slowing down. Does this mean that really tougher days are ahead? —Frederico from Sacramento

For the past several years in the industry, lenders have had a steady stream of refinances as rates have stayed near historic lows. During this time, these refinances have masked the normal seasonal cycle of production within the industry. There are many cycles which affect production -- interest rate, economic, seasonal and even monthly cycles. The seasonal cycle is associated with purchases and peaks in the spring and slows down during the heat of the summer -- though there may be variations in different parts of the country. The end of the summer and early fall brings a second burst of production, but typically not as strong as the spring. Late fall and early winter brings another slowdown. Refinances will more closely follow interest rate cycles, regardless of the time of the year.

The slowdown you are experiencing seems to follow a seasonal pattern and I would expect that things will pick up a bit after Labor Day. That does not mean that we are not seeing the introduction of another cycle which would be a more defined slowdown in the market because of higher rates and a slower economy.

However, we can't really determine this until the fall season hits and there would also likely be an accompanying increase in inventory which is not being sold as quickly. Of course, if a slowdown in the real estate and the economy does occur, there is an opportunity for rates to drop and refinances could increase. Keep in mind that this analysis is an oversimplification and is purely speculation. But understanding the cycles in the industry can help you as you implement your business plan.  —Dave

Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email directly at [email protected].