Home Purchase Lending Expected to Be Lackluster in 2025 Despite Lower Rates

While
lower
mortgage
rates
have
reinvigorated
hope
for
the
stalling
housing
market,
2025
might
not
wind
up
much
better
than
2024.

Sure,
lower
interest
rates
boost
affordability,
but
there
are
other
components
to
a
home
purchase
that
remain
cost-prohibitive.

Whether
it’s
simply
an
asking
price
that’s
out
of
reach,
or
rising
insurance
premiums
and
lofty
property
taxes.
Or
other
monthly
bills
that
eat
away
at
the
housing
budget.

This
explains
why
mortgage
origination
forecasts
for
purchase
lending
continue
to
be
pretty
dismal.

However,
the
emerging
trend
of
rising
mortgage
refinance
volume
should
get
stronger
into
2025.

2024
Purchase
Volume
Has
Been
Revised
Down

A
new
report
from

iEmergent
revealed
that
2024
purchase
mortgage
originations
are
projected
to
fall
in
terms
of
loan
count
when
compared
to
2023.

In
other
words,
despite
lower

mortgage
rates,
the
number
of
home
purchase
loans
is
now
expected
to
fall
below
2023
levels.

However,
thanks
to
an
increase
in
average
loan
size,
the
company
believes
purchase
loan
volume
will
still
see
a
modest
increase
of
3.5%
year-over-year.

To
blame
is
still-high
mortgage
rates,
which
peaked
about
a
year
ago
and
have
since
fallen
nearly
two
percentage
points.

But
home
prices
remain
elevated,
and
when
combined
with
a
6%
mortgage
rate
and
steep
insurance
premiums
and
rising
property
taxes,
the
math
often
doesn’t
pencil.

Adding
to
affordability
woes
is
the
continued
lack
of
existing
home
supply.
There
simply
aren’t
enough
homes
for
sale,
which
has
kept
prices
high
in
spite
of
reduced
demand.

Refis
Expected
to
Jump
Nearly
50%
from
2023
Lows

On
the
other
side
of
the
coin,

mortgage
refinances
are
finally
showing
strength
thanks
to
that
pronounced
decline
in
mortgage
rates.

They
bottomed
in
late
2024
when
the
30-year
fixed
hit
the
8%
mark,
with
only
a
handful
of

cash
out
refinances
making
sense
for
those
in
need
of
payment
relief
(on
other
debt).

But
since
then

rate
and
term
refinances
have
picked
up
tremendously
as
recent
vintages
of
mortgages
have
fallen
“into
the
money”
for
monthly
payment
savings.

As
noted
a
week
ago,

rate
and
term
refis
surged
300%
in
August
from
a
year
earlier
and
the
refinance
share
of
total
loan
production
rose
to
26%,
the
highest
figure
since
early
2022.

Chances
are
it
will
continue
to
grow
into
2025
as
mortgage
rates
are
expected
to
ease
further
this
year
and
next.

iEmergent
said
they
“expect
rates
to
finally
start
declining
in
the
months
ahead,”
on
top
of
the
near-2%
decline
we’ve
already
seen.

While
many
have
argued
that
the
rate
cuts
are
mostly
baked
into
mortgage
rates
already,

which
explained
mortgage
rates
rising
after
the
Fed
cut,
there’s
still
a
lot
of
economic
uncertainty
ahead.

The
50-basis
point
came
as
a
surprise
to
many
and
another
one
could
be
on
deck
for
November,
currently
holding
a
60%
probability
per

CME
FedWatch.

If
it
turns
out
the
Fed
has
gotten
behind
the
eight
ball,
10-year
bond
yields
(which
track
mortgage
rates)
could
drop
more
than
is
already
penciled
in.

At
the
same
time,
there’s

still
room
for
mortgage
spreads
to
compress
as
the
market
normalizes
and
adjusts
to
the
new
lower
rates
(and
higher
loan
volumes
ahead).

2025
Refinance
Volume
Slated
to
Rise
Another
38%

Looking
forward
to
2025,
the
refinance
picture
is
expected
to
get
even
brighter,
with
such
loans
rising
a
further
38%
(in
dollar
amount)
from
2024.

This
will
likely
continue
to
be
driven
by
rate
and
term
refis
as
interest
rates
continue
to
improve
and

the
millions
who
took
out
loans
since
2022
take
advantage
of
cheaper
rates.

But
it
could
also
come
in
the
form
of
cash
out
refinances,
which
will
become
more
attractive
as
well.

Even
if
an
existing
homeowner
has
a
rate
of
say
4%,
something
in
the
high-5s
or
low
6%
range
could
work
if
they
need
cash.

This
could
be
a
reflection
of
increasing
debts
in
other
departments,
as
pandemic-era
savings
run
dry.

Ultimately,
homeowners
have
barely
touched
their
equity
this
housing
cycle,
so
there’s
an
expectation
that
it’ll
happen
at
some
point,
especially
with

home
equity
at
record
highs.

You
might
also
see
this
in
the
form
of

second
mortgage
lending,
with

HELOC
rates
expected
to
fall
another
2%
as
the
prime
rate
is
lowered
by
that
same
amount
over
the
next
12
months.

Meanwhile,
iEmergent
is
forecasting
a
paltry
6.5%
increase
in
purchase
volume
in
2025,
pushing
overall
dollar
volume
growth
to
just
13.3%

As
for
why
purchase
lending
is
projected
to
be
relatively
flat
next
year,
it’s
a
wider
economy
story.

If
economic
growth
continues
to
decelerate
and
a
recession
takes
place,
a
weaker
labor
market
with
higher
unemployment
could
dampen
home
buyer
demand.

So
even
if
mortgage
rates
decline
more
as
a
result,
you’ve
got
fewer
willing
and
able
buyers,
despite
lower
monthly
payments.

This
explains
the
phenomenon
of

how
home
prices
and
mortgage
rates
can
fall
in
tandem.

They
might
not,
but
it
at
least
debunks
the
idea
of
there
being

an
inverse
relationship
between
the
two.

Long
story
short,
2025
should
be
better
for
mortgage
originators
thanks
to
refis,
but
don’t
get
your
hopes
up
on
purchase
lending
seeing
a
big
jump
thanks
to
lower
rates.