While purchase mortgage applications have declined by about 9.0 percent since early May, pending home sales jumped during the same period to the highest level in more than six years, suggesting that existing homes sales were probably strong in the second quarter.  Since cash sales play such a large role in the market – near one-third of existing home sales over the last year – sales may be less sensitive to rate changes than in the past.

While some homebuyers may be knocked out of the market by rising rates, other may jump in as they see rates and prices rising.  The sharp rise in pending sales, if followed by a pullback in subsequent months will confirm if sales are merely being pulled forward.

Inventories seem to have bottomed out which will relieve some of the pressure on prices and promote more sales compared to the first half of the year when limited inventories and strong investor demand led to multiple offers in many areas.

Home building activity continues to increase with housing starts up in May for both multifamily and single family houses and single family permits increasing for the eighth time in nine months.  Multifamily construction has performed well throughout the recovery while single family building has been more modest and the recovery among the worst in recent history.

Fannie Mae says it expects mortgage rates to continue to rise gradually, averaging 4.7 percent in the fourth quarter, about 40 basis points higher than was projected a month ago.  The forecast of home sales remains about the same – about an 8.0 percent increase in 2013.  The company revised its forecast of housing prices to a median of $276,000 for new homes and $189,000 for existing homes in the fourth quarter of 2013.  In June the forecast had called for median prices of $266,000 and $189,000 respectively by the end of the year.

Fannie Mae is projecting a modest increase in purchase mortgage originations compared with earlier forecasts and have lowered projected refinance figures for the second consecutive month due to the surge in mortgage rates.  For the year the forecast is for total mortgage originations to decline to $165 trillion from $2.03 trillion in 2012 with the refinance share dropping from 73.0 in 2012 to 62.0 percent in 2013.

SOURCE: www.mortgagenewsdaily.com