Thatrnmarket, she says, is made up of two distinct parts, the home purchasernmarket which is driven by sales and the refinancing market which isrndriven by rates. In addition to sales the dollar amount of purchasernoriginations is influenced by home prices, loan-to-value ratios, andrnthe share of purchases that use a mortgage. In the go-go days beforernthe crash all of theses were in high gear producing record highrnnumbers of sales, easy access to credit, and soaring home prices. The economy was also sailing and interest rates were hovering aroundrn6 percent. Then it ended and we had a five-year stretch of lowrnpurchase origination volumes.</p

Laternlast year we began to see that sector recover; there was a 19 percentrnyear-over-year increase in purchase originations in Quarter 1, 2013. The recent rise in rates, Boesel says, should not significantly slowrnpurchase origination volumes. The higher rates are a signal that thernbroader economy is strengthening and have positive implications forrnthe housing market. Also the impact of rising rates on housingrnaffordability is minimal. Purchase money originations are estimatedrnto increase between 12 and 22 percent in 2013 compared to 2012 asrnhome prices continue growing and sales improve further. </p

Refinancingrnwill probably be a different story. Those originations representedrnabout 70 percent of the market for the first half of this year butrnthat share is certain to fall in the second half. The figure belowrnshows the distribution of outstanding mortgages as of May. Beforernthe recent rise in rates about 80 percent of outstanding mortgagesrnhad rates higher than the market rate but now only about 55 percentrndo. CoreLogic estimates that as of July 29 percent of borrowers arern”in the money” to refinance, taking into consideration therncurrent market rate, outstanding mortgage rates, and whetherrnpotential monthly savings are large enough to justify refinancing.</p

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Thernrecent increases are already having an effect. The Mortgage BankersrnAssociation’s Weekly Applications Survey for late July showed arndecrease in applications for refinancing of 12 percent from the priorrnmonth and 59 percent from the prior year. Housing market forecastersrnare projecting a reduction in refinance volume for the second half ofrn2013 with forecasts for originations ranging from $1 to $1.1 trillionrnfor the year and $700 to $800 billion of that already completed. “Adding in the improving purchase money market, total mortgagernoriginations are estimated to come in between $1.6 trillion to $1.8rntrillion for all of 2013,” Boesel says, “a drop as small as 10rnpercent or as large as 19 percent from 2012.”

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