Where Are Interest Rates Heading in 2014?

Risky BusinessMortgage rates will probably rise above 5 percent in 2014 and average 5.3 percent by the end of 2015 according to the Mortgage Bankers Association’s (MBA) forecast.

“We are projecting home purchase originations will increase in 2014 due largely to gains in home sales and home prices. We expect to see a decline in the share of sales paid for with cash, and higher average LTVs (loan to value) on purchase mortgages, due to the rise in home prices,” said Jay Brinkmann, MBA’s chief economist.

Home purchase loan originations are expected to rise 9 percent as home sales and prices continue to grow; however, rising mortgage interest rates will dramatically curtain refinancing.  Mortgage refinancing is predicted to continually drop through 2015 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. On balance, however, the gain in loan originations is expected to outweigh the decline of mortgage refinancing.  From 2014 to 2015 purchase loan originations are expected to grow by 10 percent while refinancing will  fall  6 percent.

Sondra/November, 2013

Source:  Reuters, Inman News, National Association of Realtors