Mortgage originations fell by less than 25% last year, to $774 billion, according to the Mortgage Bankers Association of America. The decline was surprisingly mild, considering what many individual companies were reporting each month or quarter.
David Lereah, the trade group's chief economist, said his estimate all along had been for originations of $750 million to $775 million, down from about $1 trillion in 1993.
"It's always been our thought here that mortgage lending has not been that bad, with purchase originations at a record level and home sales and new construction also very high," he said.
Softening the decline for the year was the fact that first half originations, at $474 billion, were not far from the record pace of the year before.
Mortgage banking companies also began to lose market share to thrifts during the year. With adjustable-rate mortgages gaining popularity, lenders that hold them for investment, such as thrifts and banks, rapidly took market share away from mortgage bankers. The latter thus experienced much steeper declines than the industry as a whole. Many mortgage banks reported drops of 40% to 50% and reduced their staffs sharply.
Quarterly originations have been mostly flat at roughly $150 billion a quarter since the third quarter of last year and are expected to continue that way this year.
The result is that originations should drop another 20% this year to a little over $600 billion, Mr. Lereah pointed out, with the absence of refinancings accounting for virtually all the difference.
The picture won't improve much until 1996, Mr. Lereah said. A slight pickup in refinancings in the second half of next year could push originations up to about $615 billion or perhaps higher, he believes.
In the housing sector, Mr. Lereah expects home sales and housing starts to ease slightly and stay in a very narrow range this year and next. Price increases will range from 3.3% to 3.5% a year.
"Basically, we see a favorable interest environment in the present quarter, and that's because now the Fed is sitting on its hands, the economy is showing some signs of slowing, Mexico's problems are affecting the export sector, and there are signs that the housing sector is beginning to slow," he said.
"My gross domestic product for Quarters 1 and 2 has been revised downward, too, so there's no inflationary pressure."
But he is less optimistic about the second half.
"Come summertime, Mexico will have less and less impact on the export sector. Exports will pick up. Recent declines in interest rates should rejuvenate at least some parts of the economy," he said.
"As economic activity accelerates, there will be some modest worsening of inflation and upward pressure on rates. It's likely the Fed will act in August, and maybe again near the end of the year."
By the second half of 1996, however, he sees rates coming down enough to stimulate some refinancings, the principal reason for his expectation of a small gain in originations for the year.