Will Rising Interest Rates Affect Originations This Year?

Recent increases in mortgage rates have ""CoreLogic"":http://www.corelogic.com/ asking the question, ""Will rising rates lead to declining originations?"" From May to August of this year, rates rose 100 basis points up to 4.39 percent.

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The answer to CoreLogic's question is twofold, as the originations market is made up of two distinct parts--purchase originations and refinance originations.

When it comes to purchases, CoreLogic economists say in a recent ""report,"":http://www.corelogic.com/downloadable-docs/MarketPulse_2013-August.pdf?WT.mc_id=prnw_130815_afd3H ""Though mortgage interest rates have recently risen, CoreLogic does not expect any significant slowing in purchase origination volumes.""

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CoreLogic analysts reason that home purchases have to do with more than just interest rates. Other driving factors include home prices and loan-to-value ratios.

In contrast, refinances are much more linked to mortgage rates. Thus, ""[t]he greatest impact of increasing interest rates on the mortgage originations market will be felt on refinance volumes,"" CoreLogic reasons.

During the first half of the year refinances made up 70 percent of mortgage originations, but CoreLogic expects refinances to make up a declining share as the year continues.

Analysts predicted between $1 trillion and $1.1 trillion in refinance volume for the year, and between $700 billion and $800 billion had already taken place by midyear.

Rising interest rates make refinances less attractive to a growing number of homeowners. CoreLogic points out that before the recent interest rate hikes, 80 percent of mortgages had interest rates above the market rate. Today, about 55 percent of mortgages have rates exceeding the market rate, according to CoreLogic.

In total, CoreLogic expects between $1.6 trillion and $1.8 trillion in mortgage originations for the entire year, which will be a decline of between 10 and 19 percent from last year.