Mortgage Originations, Home Prices Expected to Drop in 2011

By Kyle Chezum Updated on 1/26/2011

1/26/11

The Mortgage Bankers’ Association announced today that it expects to see mortgage originations drop a hefty 36% during the coming year.  The institution predicts that refinance loans would decrease from 69% of all mortgages originated to a paltry 36% of the lending market.

In the past week alone, refinance applications decreased 15.3% to a 12 month low.  The drop is tied to an increase in mortgage rates, up from 4.77% to about 4.8%.  Rates for 30 year fixed mortgages are expected to top out at 5.3% this year and rise to 5.8% in 2012.  Michael Berman, chairman of the MBA, reported that “the private market has not returned” to the home loan sector.

Home purchase mortgage applications decreased almost 9% last week to a low not seen since autumn of 2010.  Single family home prices continue to drop as well.  Economists expect an additional 5% average price decline over the course of the year.  Prices aren’t expected to rise until the excess supply of homes on the market begins to shrink.  Currently, the market is clogged with a 7 month inventory of new homes.

This news comes on the heels of reports that new home sales increased substantially in December, by almost 18%, over November’s levels.  The new home sale rate spiked upward to 329,000 units but still fell about 7.6% short of levels seen in December of 2009.