According to a report by Keefe, Bruyette & Woods (KBW), the nation’s largest full-service investment bank specializing exclusively in the financial services sector, mortgage originations are expected to decline by at least 16% in 2010. There are two major reasons for this prediction: the $8,000 first-time homebuyer tax credit and the $6,500 “move up” homebuyer tax credit will expire at the end of April, and the Federal Reserve will have completed its purchase commitment of $1.25 trillion in mortgage-back securities around the end of the first quarter.
When the Federal Reserve completes their purchase pledge, refinance mortgage applications will decline as current mortgage rates rise, rather significantly, as a result. The boost in mortgage rates will also hinder purchase applications, as will the expiration of the two popular tax credits for homebuyers. As the housing economy stabilizes, any additional government intervention to encourage refinancing is highly unlikely. Without the recent extension to the $8,000 first-time homebuyer tax credit and the implementation of the new $6,500 “move up” homebuyer tax credit, the drop off in home purchases more-than-likely would have come sooner.
In order to benefit from the extremely low current mortgage rates, borrowers are encouraged to submit their mortgage applications as soon as possible. The availability of these low rates is definitely limited, but a definitive timeframe on this limitation is widely unknown at this time. As predicted though, mortgage applications spiked in the first week of December following the Thanksgiving holiday. Again, it is anticipated that an upsurge in mortgage applications will take place immediately following the New Year’s holiday.
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