Higher mortgage costs won’t put the brakes on homebuying, expert says

DALLAS — Higher home financing costs won't derail the housing market this year, the country's top mortgage industry economist says.

But an unexpected jump in the number of people late with their home loan payments has analysts taking notice.

"We are forecasting about a 4 percent (annual) growth in mortgage debt outstanding over the next couple of years," Lynn Fisher, vice president of research and economics for the Mortgage Bankers Association, said during the industry's annual servicing conference earlier this month in suburban Dallas.

At the end of 2016, there was almost $9.7 trillion in U.S. mortgage debt. By the end of 2018, the mortgage bankers anticipate that will rise to almost $10.1 trillion in home loans.

The Mortgage Bankers Association predicts that new loan originations nationwide will drop about 15 percent this year because of higher interest rates. With mortgage rates moving up, home refinancings are expected to fall almost 50 percent.

Most of the new loans during the next couple of years will be for homebuying, Fisher said.

Home purchase loans are forecast to rise about 10 percent this year. The increase will come from a combination of more purchases and higher prices.

"We are forecasting about a 10 percent growth in singlefamily housing starts for 2017 and a little bit less than that for 2018," Fisher said.

Along with mortgage costs, home prices will rise this year.

"We are still expecting fairly strong house price growth this year — about 4.8 percent," Fisher said. "That should start slowing down a little bit as new housing starts pick up momentum."

Of course, all those forecasts assume that mortgage rates won't get out of hand.

Because of higher inflation and anticipated wage growth, Fisher said the Federal Reserve could inch up borrowing costs again as soon as next month.

Still, the Mortgage Bankers Association's outlook is for modest mortgage rate increases. Fixed mortgage rates are averaging 4.15 percent.

"By the time we get to the fourth quarter of this year, we will still be under 5 percent — we are thinking 4.7 percent," Fisher said. "Something north of 5 percent by the time we get to 2018, and by the time we get to 2019, we show fourth-quarter rates hitting 5.5 percent.

"Putting it in historical context, those are not gigantic numbers."

To deal with the higher financing costs, more homebuyers are using adjustable rate loans, which start with a lower interest rate.

"The share of adjustable rate mortgages has hit 7.5 percent, the highest it's been in quite a while," Fisher said.

The notable red flag in the Mortgage Bankers Association's 2017 outlook was a surprise hike in its fourth-quarter mortgage payment delinquency survey.

"In the fourth quarter across all loan types, we did see an uptick for the first time in quite a while," said Marina Walsh, the association's vice president of industry analysis. "We are not sure if this is a blip or the start of a trend.

“Most of it is related to 30day delinquencies," she said.

The number of U.S. home loans facing foreclosure remains very low.

"New foreclosure starts are still dropping — it's the lowest level since 1988," Walsh said. "Loans in foreclosure are at the lowest level since 2007."