Total mortgage originations, including purchasing and refinancing applications, declined by 16% in the fourth quarter of 2016 to 470,000 from 561,000 in the third quarter of 2016, according to Brian Turner, president and chief economist of Meridian Economics in Plano, Texas.

Based on Meridian's analysis of federal data, mortgage applications totaled 232,000 in the fourth quarter down from 298,000 in the third quarter. In addition, refinance applications amounted to 238,000 in the last quarter of last year, down from 263,000 in the third quarter.

Although total mortgage originations fell to 470,000 in 2016's final quarter, it was higher than the 405,000 mortgage originations at the end of the fourth quarter of 2015.

Mortgage originations in the first quarter of last year totaled 350,000, then shot up to 510,000 in the second quarter and 561,000 in the third quarter.

“Home purchase volume has been supported by an improved job market, a younger generation slowly moving toward homeownership age and additional move-up buying,” Turner said. “Refinance volume picked up last quarter but is [expected] to slide, decreasing to $471 billion from $901 billion in 2016, as rates increase around 80 basis points on average from 2016 to 2017.”

The refi applications increased from a low of 165,000 in the first quarter of 2016 and increased to 235,000 in the second quarter and 263,000 in the third quarter. However, refi applications dropped to 238,000 in the last quarter of last year.

“After previous waves of refinancing over the past three years, a large portion of borrowers have locked into lower rates and there are fewer left to take advantage of current rate levels,” Turner said. “I expect any remaining refinance borrowing will be from borrowers still rebuilding home equity or borrowers who might want a cash-out refinance.”

However, as rates begin to increase, current borrowers with record low interest rates may be hesitant to use cash-out refinancing as a means of accessing their home equity. This may lead to greater use of HELOCs, personal loans or other debt to finance home improvements and other big ticket items, he said.

Although new home sales in 2016 totaled 563,000, the highest level in nine years, both headwinds and tailwinds are expected for homebuyers throughout 2017.

Homebuyers may face headwinds of higher mortgage rates, low existing inventory and uncertainties of new tax policies from the Trump administration, according to Ralph McLaughlin, chief economist for Trulia. However, near full employment and rising wages are strong tailwinds that may push new home sales higher this year, he said.

Instant Insights /

Mortgage Originations Drop by 16%: Meridian

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