With refinancing activity not expected to meet last year's volume, economists at Freddie Mac say that origination volume could be down this year by 20%. They predict that total single-family originations would reach about $1.6 trillion this year, down from $2 trillion in 2001.
However, they emphasize that this is still a historically high level - second only to last year in terms of originations. And despite the dip, the continued strength of the housing sector is still a predominant theme in the current economic cycle,
"The housing market has been so critical in supporting the economy in the last year and a half," said Frank Nothaft, Freddie Mac's chief economist. "If it hadn't been for the strength of the housing sector, the recession would have been far worse."
The projected decline is based on the fact that while Freddie is expecting an increase of purchase money originations, economists from the firm are expecting a dip in refinancing activity. The share of refinancing in terms of loan applications is currently in the 40% range, which is down from last November (when mortgage rates were at their historical lows) when refinancings had an 80% share.
According to Nothaft, the Agency is projecting that refinancings will comprise about 40% of originations for 2002, which was down from last year's refinancing share of 55% to 60%. On the other hand, Nothaft said that he believes 2002 home sales will surpass the record volume of home sales achieved in 2001. Freddie Mac combines new home sales and existing home sales in figuring out what the total home sales figure is.
The increased number of home sales should generate more purchase money originations. Total home sales last year amounted to about 6.2 million, which shattered records. This year, Freddie expects home sales to reach 6.25 million.
Further, they expect home price appreciation to increase by 4% to 5% in 2002. So between home price growth and a larger number of home sales, purchase money originations will most likely increase relative to 2001. However, with refinancings less in 2002, this has brought down Freddie's total estimate.