Down or Up: Where Are Mortgage Rates Heading in 2014?

According to the Mortgage Bankers Association’s forecast, mortgage rates are likely to rise above 5 percent in 2014 and average 5.3 percent by the end of 2015.

That would mark a substantial jump over where mortgage rates currently stand. The MBA reported this week that the 30-year fixed-rate mortgage averaged 4.33 percent, the lowest average since June.

The MBA expects that the Federal Reserve will decide to taper its $85-billion per month bond-purchasing program in early 2014 and end it altogether in September 2014. The Fed’s bond buying program has been keeping mortgage rates low. The Fed has hinted in recent months that it will soon be winding down the program.
This will likely result in a continued decline in mortgage refinancing, and borrowers seeking to tap the equity in their homes will be more likely to rely on home equity seconds rather than cash-out refinances.
The MBA indicates in its forecast that it expects home purchase applications for mortgages to rise 9 percent next year, following expected continued home sales and price increases.
However, the MBA projects that mortgage originations will drop by 32 percent in 2014, as the number of refinancing applications post a large drop in the New Year due to expected rising interest rates.
While mortgage refinances make up the bulk of home applications today, it is anticipated that this trend will reverse next year. Purchase loans are expected to make up 60 percent of new loan originations next year compared to about 38 percent this year.

Source: “U.S. Mortgage Applications Increase as Rates Edge Down,” Reuters (Oct. 30 2013) and “Purchase Loans Expected to Buck Rising Mortgage Rates Next Year,” Inman News (Oct. 29, 2013)

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