More jobs and easier loan terms will boost demand for new mortgages in the second half of this year as homebuyers shrug off higher interest rates, according to a Fannie Mae forecast issued Wednesday.
Lending for mortgages to purchase homes will increase 21 percent for the final six months of 2013 to $341 billion from $282 billion in the first half, according to an advance copy of the forecast obtained by Bloomberg News. Total U.S. residential mortgage debt probably will increase 1.1 percent in 2013 to $10 trillion, followed by another increase to $10.2 trillion in 2014, Fannie Mae estimated.
A 1 percentage-point jump in average mortgage rates since May hasn't curbed enthusiasm for home buying, even as declining demand for refinancing saps profit at the biggest banks. Almost 4 percent of Americans in July said they plan to buy a home in the next six months, the highest in at least four years, according to the Conference Board, a New York research firm.
"It's not going to be the kind of rocket-ship market we've seen, but it's still a good time for real estate," said Michael Hanson, a former Federal Reserve economist now working for Bank of America Corp. in New York. "We've seen a gradual easing of mortgage availability, and affordability is still good."
The projection bodes well for bankers who depend most heavily on mortgages at a time when financial firms are scrounging for revenue. Wells Fargo & Co. and JPMorgan Chase & Co., the two biggest home lenders,
have predicted that mortgage refinancing will shrink the rest of this year, with JPMorgan calling the potential impact "dramatic."
The National Association of Realtors said today purchases of previously owned houses advanced 6.5 percent to a 5.39 million annual rate last month, the fastest pace since November 2009. For all of 2013, sales probably will total 5 million, a gain of 8 percent over 2012, according to the Fannie Mae forecast.
Mortgage rates have jumped from near-record lows in May to 4.4 percent last week on 30-year fixed loans, according to Freddie Mac, amid anticipation that the Fed will slow its purchases of securities backed by real estate later this year. The central bank probably will announce a reduction on Sept. 18, according to a report that accompanies today's forecast from Washington-based Fannie Mae.
"We've seen a pickup in employment and we think that's consistent with a comment from Fed Chairman Ben Bernanke that the program will end when the unemployment rate trends down to around 7 percent," said Doug Duncan, Fannie Mae's chief economist.
The jobless rate probably will decline for the rest of this year to a five-year low of 7 percent in the first quarter of 2014, according to Fannie Mae.
"More jobs means more potential home buyers," said Lawrence Yun, chief economist at the National Association of Realtors. "It's a counteracting force to rising mortgage rates."
What's more, credit markets are "modestly" thawing, according to Fannie Mae's forecast, and the Fed's survey of senior loan officers published this month showed domestic banks mostly easing their standards over the past three months. Demand was stronger in most loan categories, the Fed reported.
Qualification standards for mortgages went from one extreme during the end of the housing boom -- much too loose -- to the other during the beginning of the housing recovery, Yun said.
"The recovery has been held back by underwriting standards that have been overly stringent," Yun said. "Loans have been performing so well during the last three years, and the values of homes that collateralize the loans have been rising, so we expect to see lenders dialing back."
The housing market hasn't returned to pre-crisis levels because a whole class of "dangerous" adjustable-rate mortgages was eliminated and underwriting standards are tougher, said James Grosfeld, former chief executive officer at the homebuilder now known as PulteGroup Inc. Fannie Mae and Freddie Mac "are probably writing the best mortgages, the safest mortgages that they've ever written right now," Grosfeld said in an interview on Bloomberg Television's "Surveillance."
Growing demand and a lack of supply propelled the median price 14 percent higher in June, the biggest year-over-year gain since the record 17 percent in October 2005, according to Yun.
Median prices for single-family homes gained in about nine out of every 10 U.S. cities in the second quarter as buyers competed for a limited supply of properties, according to Yun. About 2.2 million homes were available for sale in June, 7.6 percent less than a year earlier, he said.
"We had a market that overshot its bottom on the way down, and we're struggling to keep up with demand as it makes its way up," said Bank of America's Hanson.
-- With assistance from Victoria Stilwell in Washington.