It's that time of year, the moment when predictions begin to appear telling us what's expected with mortgage rates and housing for 2014.
First up, we have the National Association or Realtors which predicts that in 2014 home sales will hold steady at about 5.12 million units. Home prices, says NAR, should increase almost six percent in the coming year versus just over 11 percent in 2013.
But doesn't a slow-down in home prices mean the housing market is cooling?
Actually, less appreciation is desirable at this point. The reason is that some commentators have begun to worry about a housing bubble. The reason for such thinking is that incomes have stagnated. According to the Census Bureau 2011 incomes were 8.9 percent lower than in 1999.
In other words, as home values rise they require more income to support higher prices. One way around this problem is to reduce mortgage rates -- and with mortgage rates now around 4.3 percent that's what happened this year and in 2012, a year with record low interest levels. The result is that even with stagnant incomes it has been possible for home prices to rise.
The catch, of course, is that annual price increases of 11 percent are not sustainable, thus less appreciation in 2014 is actually a good thing. No less important, NAR predicts that interest rates will hit 5.4 percent in 2014.
Next we have the Mortgage Bankers Association. It says loan originations will tumble 32 percent in 2014.
Again, this is not quite as hideous as it may seem. The MBA actually expects purchase originations to grow by nine percent. Refinancing, however, is a different story. The Association expects refinancing originations to plummet 57 percent.
The purchase origination figure suggests that the mortgage lenders feel there will be a significant increase in home sales next year, the only way that purchase money mortgage volume can increase. This contrasts with the more cautious view offered by NAR.
Alternatively, the MBA is saying that refinancing activity will fall, the logical result of the low rates we now see and have been seeing for some time.
“We expect mortgage rates will increase above 5 percent in 2014 and then increase further to 5.5 percent by the end of 2015," says the MBA. "As a result, mortgage refinancing will continue to drop, 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."
Will such predictions be right? Less refinancing activity seems assured given today's low rates and the refinancing activity seen during the past two years. As to home sales and real estate values, we'll have to wait and see if those forecasts turn out to be true.