Due to slowing refinance activity from rising mortgage rates, total mortgage originations are set to decline through 2022 and 2023.
According to Freddie Mac’s quarterly forecast, total mortgage originations are expected to decline from a high of $4.7 trillion in 2021 to $3.3 trillion this year and $3.1 trillion in 2023.
While overall originations will decline, home purchase originations are expected to grow from $1.9 trillion in 2021 to $2.1 trillion this year.
This growth is a result of current high demand and home price growth. Although home price growth should slow, it still remains high.
Refinance activity, on the other hand, should slow significantly, from $2.7 trillion in 2021 to $1.2 trillion in 2022 and $930 billion in 2023. Freddie Mac experts attribute this decline to higher mortgage rate forecasts for the next two years.
Mortgage rates are on the rise, but currently still are historically favorable. As a result, demand from first-time homebuyers and other buyers influenced by the pandemic’s effects remains stable.
Freddie Mac’s forecast predicts home sales will hit 6.9 million this year, down from 7.1 million in 2021. Freddie Mac researchers anticipate another increase to 7 million in 2023.
Home price growth should decrease from 15.9 percent in 2021 to 6.2 percent in 2022, and slide even lower to 2.5 percent by 2023, according to the forecast.
Similarly to other market experts, Freddie Mac researchers expect inflation to stabilize once the Federal Reserve intervenes with reduced asset purchases and interest rate rises.
While mortgage rates are surprising some experts with the rapid increases, Freddie Mac economists still anticipate an average 3.6 percent rate this year, and an average of 3.9 percent next year.
The forecast also reveals a need for continued improvement in employment. Although the unemployment rate reached 3.9 percent in December, job openings are still at a sharp 10.6 million.
Mortgage data provider Black Knight found the number of refinance candidates has dropped from 11 million at the start of the year to 5.9 million.
Experts say the refinance drop impacts not only the lending volume, but potential consumer spending. When borrowers aren’t refinancing, they lose out on savings they could be spending elsewhere.
Homeowners also still have record amounts of equity available to them, experts say, and while rising rates have cooled refinance interests, there’s still a lot of opportunities to tap into this equity.