The mortgage market, beaten down by higher interest rates and weak home sales, is showing signs of perking up.
After hitting a 14-year low in the first three months of this year, second-quarter home lending was much stronger than analysts expected, Inside Mortgage Finance reported Thursday.
The trade publication estimated that lenders funded about $310 billion in mortgages across the nation in April, May and June, up 32% from the first quarter.
The increase took place as the business changed from mainly refinancings to mostly loans for home purchases.
That purchase market has been constrained in California by fewer homes for sale and prices that rose sharply in recent years as all-cash investors snapped up distressed properties. The tech boom and rising stock prices also drove heavy demand in more affluent parts of the state.
Now a better balance seems to be returning to many markets after years of disruptions, with prices leveling off and buyers taking advantage of interest rates that, while up from record lows, are still bargains, said Inside Mortgage's chief executive, Guy Cecala.
"We're not looking at a housing boom by historical standards," Cecala said. "But I think we're looking at a more sustainable housing market where more people are buying homes to live in, not for investment purposes."
As of June, the Mortgage Bankers Assn. was projecting that lenders would originate $1.02 trillion in mortgages this year, with 42% of that being refinanced loans. That's down from $1.76 trillion last year, when the refinance share was 63%. Mortgage lending peaked at $3.9 trillion in 2003, according to Inside Mortgage Finance.
Other mortgage watchers have lower projections. FBR & Co. recently cut its forecast for new home loans this year by 8% to $989 billion from nearly $1.1 trillion.
Cecala said that if mortgages continue at the second-quarter pace, the total for the year could turn out to be closer to $1.2 trillion.
As always, the cost of borrowing money has played a major role in the trends.
A sharp increase in long-term interest rates in June 2013 choked off a boom in homeowners refinancing their loans to save money. But rates this year, though well above record lows, have defied economists' expectations by drifting lower.
A favorable jobs report pushed mortgage rates slightly higher in this week's survey of lenders by Freddie Mac, with the average for a 30-year fixed loan rising to 4.15% from 4.12% last week. The 30-year rate, which was in the low 3% range early last year, started this year around 4.5%
Rick Sharga, executive vice president at online real-estate company Auction.com in Irvine, said the low mortgage volume in the first quarter stemmed from a harsh winter that gripped much of the country and the scarce number of homes for sale.
With that inventory shortage now easing, price increases slowing and mortgage rates falling, "I'm not really surprised if there was a surge in the second quarter," Sharga said.
"I think people who had been hesitating about buying a home started feeling some incentives to move forward," he said.
Still, it will take more than one better quarter to declare the mortgage business back to normal, he said, especially since second quarters are often strong ones.
Michelle Velez, a San Mateo County loan broker and president of the California Assn. of Mortgage Professionals, said lenders around the state have been reporting a pickup in business. Demand is still outstripping supply of homes for sale, though, with especially low inventories in the Bay Area.
"In certain areas, like San Carlos, realtors are putting homes out there at, say, $1.5 million and they're winding up selling for $2 million," Velez said.
In Southern California, a veteran loan broker reported more of a return to a balanced market.
"I don't have any statistics, but it feels like home values have topped out and many are lowering their price," said Richard T. Cirelli, head of RTC Mortgage Corp. in Laguna Beach. "Buyers are looking and waiting for a deal, and homes are taking a little longer to sell."
The trend could signal good news for major mortgage lenders such as Wells Fargo & Co. However, as Inside Mortgage Finance noted, nonbank mortgage lenders such as Quicken Loans have been gaining market share at the expense of commercial banks.
Cecala said the banks are being restrained by tougher regulation in the aftermath of the financial crisis, prompting leading home lenders Wells Fargo and JPMorgan Chase & Co. to let their market share shrink rather than accept lower profit margins.
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