The days in which lenders see a large portion of their business volume coming from homeowners refinancing their mortgages may be coming to an end as the economy and housing market are in the process of changing.

Even though mortgage rates have dropped a little since last November, mortgage industry leaders at the recent Mortgage Brokers Association (MBA) National Secondary Conference in New York City pointed out that during the last decade rates stayed between 3.5-4.5%, during which time the bulk of those owners who could benefit from getting a new mortgage went through the process.

“It is structurally a different mortgage market than we’ve seen in the past,” MBA Chief Economist Mike Fratantoni said at the conference. “That long period of refi activity concentrated the entire market into a narrow band. There was a much wider spread in rates in the ‘70s, ‘80s, ‘90s and ‘00s, providing a greater opportunity for refinancing activity. We’re close to a floor in refis. We will get these little boomlets when rates drop.”

He noted that the more stable rate environment we are currently in will help first-time buyers, as will the fact that the housing market is not what it was even less than a year ago. Home prices are starting to stall or even come down a bit.

According to the MBA, the volume of refinanced mortgages came out to $97 billion in the first quarter of this year and will grow to $146 billion in the current quarter. Moving forward, however, the third quarter is probably going to drop to $100 billion and the fourth quarter of this year will drop down to $95 billion.

With the concentration in the mortgage industry toward purchase originations, the shortage of homes available on the market is a concern in the industry, and has been for a while.

“My biggest worry about the housing market,” said Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute, who also spoke at the conference, “is the lack of supply both now and in the future.”

She revealed that there are 1.28 million new units being created annually. But homes becoming obsolescent reduces that to just 855,000 on a net basis. New household formation is running at a 1.2 million annual pace. The average home in this country was constructed in 1977, meaning more houses are aging and becoming obsolete.

Over regulation and land use issues are the largest obstacles to building more homes, added Goodman, who noted that these factors are driving up the land cost at a faster rate than the cost of the actual construction. “Building codes are more stringent than they can be, which adds to the cost,” she said.

This trend is impacting the lower tier of the market, where there is only 24.5% of the supply, said Goodman. At the highest price levels is where 44.8% of the inventory lies, meaning move-up buyers have a lot more to choose from that those at the entry level.

Another factor that has had an impact on the market since the beginning of the recession is the trend for older homeowners to not move as much as they have in the past. The experts at this conference noted that this aging in place trend has constricted the supply of homes, especially larger ones that would accommodate families. Many older owners who used to sell and downsize have found that financially their best options are to stay in place – especially in a home that could be paid off and is in an area that they are familiar with.

Most of those at the conference believed that new construction is going to be the key for the mortgage market and will present the most opportunities for industry growth, since the refi segment may have exhausted itself during this cycle that has run its course over the past decade. 

Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at or call 949-457-4922.