Refinance Share Slows, but Market Continues to Look Strong for Now
Written By: Joel Palmer, Op-Ed Writer
The end of the refinance boom has been forecasted for months, but hasn't materialized as low mortgage rates continue.
Refinance volume has helped keep mortgage underwriters and processors busy at a time when purchase mortgages have been negatively impacted by a lack of inventory.
So how long will refinancing account for a significant share of the overall mortgage volume?
Ellie Mae’s latest Origination Insight Report showed that refinances accounted for 46 percent of mortgage originations in December 2019. While that was down slightly from the 49 percent the month before, it was also the fifth consecutive month that refinances accounted for more than 40 percent of volume. It was also significantly higher than the 29 percent share of refinances in December 2018.
Among conventional loans, refinances have accounted for more than half of mortgage volume for each of the past four months.
The trend looks to be continuing in January. According to the most recent Mortgage Bankers Association's Weekly Mortgage Applications Survey, the refinance share of mortgage activity was 60.4 percent of total applications. That was down slightly from 61.6 percent the previous week.
"With the 30-year fixed rate at its lowest level since November 2016, refinances jumped 7.5 percent,” said Joel Kan, MBA's associate vice president of economic and industry forecasting.
Refinancing volume should remain strong as long as mortgage rates remain low enough to benefit existing homeowners.
The latest Freddie Mac Primary Mortgage Market Survey showed that average 30-year fixed rates were 3.51 percent, while the going 15-year fixed rate was 3 percent.
“This week’s mortgage rates were the second lowest in three years, supporting homebuyer demand and leading to higher refinancing activity,” said Sam Khater, Freddie Mac’s chief economist. “Borrowers who take advantage of these low rates can improve their cash flow by lowering their monthly mortgage payments, giving them more money to spend or save.”
Going forward, Bankrate’s latest expert survey showed that half of respondents expect mortgage rates to fall over the coming week.
However, the industry still expects an impending end to the refinance boom. In its latest Economic and Housing Outlook, Fannie Mae did revise upward its annual forecast for total refinance volume. However, it still expects a large slowdown compared with last year. It forecasted refinance volume to drop from $918 billion in 2019 to $690 billion this year.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
