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Continued Drop in Mortgage Rates Helps Spur Refinance Activity
Continued drop in mortgage rates helps spur refinance activity
Long-term Treasury yields have tumbled during the past few months as concerns have grown that the economic recovery may have lost traction due to the impact of the fiscal stimulus fading. The yield on the 10-year note, the benchmark for consumer and corporate borrowing, has plunged more than 150 basis points after rising briefly above 4 percent in early April. While the August employment report pushed the 10-year yield higher by about 20 basis points, we expect that the increase will be temporary. We project the yield to hover around 2.5 percent in coming quarters, keeping mortgage rates at approximately 4.2 percent through most of next year. This projected level is low enough to entice well-qualified borrowers who had refinanced during the past two years to refinance again. As a result, we revised higher our projected refinance originations in the fourth quarter of this year and early next year.
Low mortgage rates are not expected to boost purchase activity as long as the labor market remains weak. Purchase originations are projected to be lower than in the prior forecast, given the deteriorating outlook for home sales. For all of 2010, total mortgage originations are projected to decline to $1.5 trillion from an estimated $1.9 trillion in 2009, with a refinance share of 65 percent. Total single-family mortgage debt outstanding is projected to decline by 2.1 percent, compared with a 1.9 percent decline in 2009.
Long-term Treasury yields have tumbled during the past few months as concerns have grown that the economic recovery may have lost traction due to the impact of the fiscal stimulus fading. The yield on the 10-year note, the benchmark for consumer and corporate borrowing, has plunged more than 150 basis points after rising briefly above 4 percent in early April. While the August employment report pushed the 10-year yield higher by about 20 basis points, we expect that the increase will be temporary. We project the yield to hover around 2.5 percent in coming quarters, keeping mortgage rates at approximately 4.2 percent through most of next year. This projected level is low enough to entice well-qualified borrowers who had refinanced during the past two years to refinance again. As a result, we revised higher our projected refinance originations in the fourth quarter of this year and early next year.
Low mortgage rates are not expected to boost purchase activity as long as the labor market remains weak. Purchase originations are projected to be lower than in the prior forecast, given the deteriorating outlook for home sales. For all of 2010, total mortgage originations are projected to decline to $1.5 trillion from an estimated $1.9 trillion in 2009, with a refinance share of 65 percent. Total single-family mortgage debt outstanding is projected to decline by 2.1 percent, compared with a 1.9 percent decline in 2009.
