More jobs and easier loan terms will boost demand for new mortgages in the second half of this year as homebuyers shrug off higher interest rates, according to a Fannie Mae forecast issued today.
Lending for mortgages to purchase homes will increase 21% for the final six months of 2013 to $341 billion from $282 billion in the first half, according to an advance copy of the forecast obtained by Bloomberg News. Total U.S. residential mortgage debt probably will increase 1.1% in 2013 to $10 trillion, followed by another increase to $10.2 trillion in 2014, Fannie Mae estimated.
A 1 percentage-point jump in average mortgage rates since May hasn’t curbed enthusiasm for home buying, even as declining demand for refinancing saps profit at the biggest banks. Almost 4% of Americans in July said they plan to buy a home in the next six months, the highest in at least four years, according to the Conference Board, a New York research firm.
“It’s not going to be the kind of rocket-ship market we’ve seen, but it’s still a good time for real estate,” said Michael Hanson, a former Federal Reserve economist now working for Bank of America Corp. in New York. “We’ve seen a gradual easing of mortgage availability, and affordability is still good.”
The projection bodes well for bankers who depend most heavily on mortgages at a time when financial firms are scrounging for revenue. Wells Fargo & Co. and JPMorgan Chase & Co., the two biggest home lenders, have predicted that mortgage refinancing will shrink the rest of this year, with JPMorgan calling the potential impact “dramatic.”
The National Association of Realtors said today purchases of previously owned houses advanced 6.5% to a 5.39 million annual rate last month, the fastest pace since November 2009. For all of 2013, sales probably will total 5 million, a gain of 8% over 2012, according to the Fannie Mae forecast.
Mortgage rates have jumped from near-record lows in May to 4.4% last week on 30-year fixed loans, according to Freddie Mac, amid anticipation that the Fed will slow its purchases of securities backed by real estate later this year. The central bank probably will announce a reduction on Sept. 18, according to a report that accompanies today’s forecast from Washington-based Fannie Mae.
“We’ve seen a pickup in employment and we think that’s consistent with a comment from Fed Chairman Ben Bernanke that the program will end when the unemployment rate trends down to around 7%,” said Doug Duncan, Fannie Mae’s chief economist.
The jobless rate probably will decline for the rest of this year to a five-year low of 7% in the first quarter of 2014, according to Fannie Mae.
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