Refinancing will come back strong in 2015, according to mortgage industry consultant Barry Habib.
His prediction relies on a contrarian view of the Federal Reserve Board’s intentions on interest rates.
The central bank will not raise rates in June, and is likely not to raise rates this year, he predicted during the Regional Conference of Mortgage Bankers Associations this week.
As a result, there will be an incredible opportunity for mortgage refinancing in 2015 as the yield on the 10-year Treasury note falls below 1.5% and rates on the 30-year fixed-rate mortgage approach 3%, he said.
Habib, the founder and CEO of MBS Highway, noted the composition of voting members of the board has changed, going from five doves, four hawks and one centrist to seven doves, two hawks and one centrist, making it less likely to take action.
Meanwhile, the dollar is getting stronger compared with other currencies, as nations in Europe and elsewhere are entering into their own quantitative easing programs.
“Would the Fed risk strengthening the dollar even more” by raising rates? Habib asked rhetorically.
During his presentation during the 2014 edition of this conference, Habib predicted rates would decline as the Fed ended QE.
In today’s market the effect of lower oil prices for consumers is vastly overrated, he said, noting consumers are not spending the average savings of $12 per week buying cars or boats.
Furthermore, the drop in oil prices is forcing producers to close wells, which in turn puts people out of work. Because of the time it takes to shut a well down, the economy has yet to feel the full impact of those moves yet, he continued.
Another factor the Fed will consider is the lack of hiring among multinational corporations. Between a stronger dollar, the price of oil and certain jobs data, Habib said it is unlikely the Fed will raise rates.
At the same time, he said media reports of weakness in the housing market are exaggerated. Any decline in home sales is from the investor sector. Nondistressed home sales are increasing.
Housing remains affordable, as the current monthly payment to income ratio is 28.2%, down from the historic median of 32.3% and the bubble era ratio of 45%.
Even the homeownership rate being at a 20-year low is good news for housing because it puts pressure on rents; having more renters decreases supply of this form of housing and increases the cost. The current rent-to-income ratio is over 25% and approaching the monthly cost to own, he said.
Habib also made an argument for offering consumers adjustable-rate mortgages, which at this time make up only 5% of new loan applications, according to the most recent Mortgage Bankers Association survey.
Mortgage originators need to explain to consumers the long-term savings they can enjoy by taking an ARM as start rates for these loans are much lower than rates for the 30-year, fixed-rate mortgage, he said.
Originators need to go into areas where their competition is not — many originators are not currently marketing ARM loans — and they should explain to their clients the possibilities, even if in the end, the consumer elects to go into a fixed-rate loan, he said.