“If you think of the massive footprints these two banks have, the results are an indication of where the mortgage market is heading,” said Keith Gumbinger, vice president of mortgage-data firm HSH Inc. “The economy is continuing to get stronger and interest rates are still favorable.”
The mortgage-volume gains at Wells Fargo, the largest US home lender, and No. 2 JPMorgan exceeded expectations. The Mortgage Bankers Association estimated on March 20 that lending in the industry would grow 17 percent to $288 billion in the first three months of 2015.
Falling mortgage costs spurred homeowners to refinance their mortgages. The average rate for a 30-year fixed mortgage dropped to 3.66 percent in the first quarter, according to Freddie Mac. That was the lowest since the first quarter of 2013.
The average rate in 2015 probably will drop to 3.9 percent from 4.2 percent in 2014 as Europe’s economic troubles spur foreign investors to buy US mortgage bonds, according to Doug Duncan, chief economist of Fannie Mae.
The 12 straight months of job gains of 200,000 or more through February also boosted demand for home loans.
John Stumpf, chief executive officer of Wells Fargo, said lower unemployment is one reason for his guarded optimism for lending in the second quarter.
“Home affordability is very high,” Stumpf said in a phone interview. “Secondly, if you look at wage increases, you are starting to see some of that. Unemployment is down, or job creation, and that’s a good thing for housing. And you are starting to see in certain markets, inventory is available.”
A National Association of Realtors index that tallies signed contracts to buy homes rose in February to the highest level for that month since 2006.
Sales of existing homes this year probably will rise 6.4 percent to 5.3 million after dropping about 3 percent in 2014, according to the association. That would be the highest since 2013, the first year of the housing recovery.
Purchases will be driven by first-time homebuyers who have been locked out by an uncertain job market and stagnant wages, said Lawrence Yun, chief economist of the Realtors’ group.
“The recovery in the jobs market is helping entry-level buyers to improve their finances at a time when mortgage rates are still very low,” said Yun. “That means we’re going to see a steady rise in first-time buyers in 2015.”
As these Americans enter the market, more move-up buyers will list their properties and purchase new homes, he said. Sales of new homes, representing about a tenth of the market, will surge about 33 percent to 583,000 this year, Yun said.
“New-home sales are coming from a deeper downturn than the existing market, so we’re going to see some bigger gains,” Yun said. “There’s a chain reaction that needs to take place for new-home sales to rise. People need to know they can sell their existing homes before they look into moving up to new construction.”
Mortgage lending probably will rise 9.7 percent to $1.23 trillion this year, with 59 percent of that going to finance home purchases, according to the MBA. That would be the strongest year for home financing since 2013.
Wells Fargo is well-positioned to continue its increase in originations. Its mortgage pipeline is up 69 percent from the prior quarter and applications have gained 41 percent, said Alison Williams, senior financials analyst with Bloomberg Intelligence.
“The two banks not only had relatively stronger growth in mortgage volumes,” said Williams. “Wells Fargo’s mortgage pipeline and application volume suggests that growth could accelerate in the second quarter.”