Driven by the refinance boom-and-bust cycle, large annual swings in home mortgage originations have been fairly common over the past two to three decades, but that may no longer be the case moving forward, CoreLogic reports.
While mortgage volumes will still vary each year, the most recent projections reveal a “new normal” for home mortgage lending. The days of large peaks and valleys may be in the past as the historic period of economic disinflation, which had its beginnings in the early 1980s, is finally behind us. In addition, lower inflation expectations have led to lower interest rates.
Whenever mortgage rates reach a new low, a wave of “rate-and-term” refinancing took place as homeowners looked to refinance to lower their mortgage cost, shorten their term, or do both. Since 2000, the number of refinance originations has carried from 1 million all the way up to 14 million loans per year.
However, since the Federal Reserve wants slightly more inflation and is targeting 2 percent inflation per year, short-term interest rates and mortgage rates are expected to rise. With mortgage rates projected above 4 percent in 2017 and the average interest rate on mortgage debt outstanding at about 3.8 percent, the share of those refinancing will shrink and is expected to hit its lowest percentage since the late 1980s by 2018, As a result, the large swings in annual lending will likely be substantially lessened.
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