Rising interest rates will reduce mortgage originations in 2004, primarily through a drop in refinancings, according to Freddie Mac’s May 2004 Economic Outlook.
The share of refis is expected to come in at about 40 percent of all mortgage originations this year, compared with shares well above 50 percent the last three years.
“For now, it looks like ‘Bye Bye Refi,'” according to the report.
Mortgage originations overall should total about $2.4 trillion in 2004, about 46 percent below 2003’s record volume and 13 percent below 2002 volume. Purchase money origination volumes, however, should set a new record.
Freddie Mac expects interest rates, which have climbed from 5.8 percent to 6.1 percent in the last month, to continue to remain volatile for some time. But they are expected to gradually rise to an average of 6.3 percent for conventional 30-year fixed rate mortgages by the fourth quarter.
Higher mortgage rates could eventually slow housing demand, but not while rates remain between 6 percent and 6.5 percent. Freddie Mac expects house price growth to be 6.3 percent for the year.
The company also expects total home sales to be brisk this year, coming in at 7.3 million units in 2004, about 1.5 percent higher than 2003 sales. Housing starts in 2004 should be about the same as last year at approximately 1.9 million units.
Overall, recent indicators for economic growth imply that growth will be strong in 2004, but it won’t be quite as strong as originally predicted due to rising oil prices and smaller than expected IRS refunds. Freddie Mac now predicts real GDP growth at 4.5 percent in the second quarter and 4.3 percent for the year.
The company also expects the unemployment rate to be near 5.4 percent by the end of the year.