For 2014, the home mortgage industry is expecting higher interest rates, fewer home refinance loans and the rollout of new consumer protection rules from an agency that Congress created after the housing market meltdown.
Both home prices and the cost of borrowing likely will rise again next year, said Dustin Hobbs, a spokesman for the California Mortgage Bankers Association. But with the industry expecting a sharp drop in home refinancing, the state's banks, mortgage brokers and credit unions will be courting qualified borrowers.
"You're going to have a lot of good competition from lenders to get your business," Hobbs said.
Many local loan officers and bank officials say the home lending business has been strong for the past two years.
"Even now, there's still a demand for money," said Scott Sheldon, a senior loan officer with W.J. Bradley Mortgage Capital Corp. in Santa Rosa. He said he fielded seven requests for new loans in the week before Christmas.
However, the refinance market began to slow last summer and is expected to plummet in 2014.
The Mortgage Bankers Association predicts mortgage originations nationally will decline 32 percent overall next year to nearly $1.2 trillion. The association estimated that new purchase loans will increase 9 percent to $723 billion, but refinance loans will drop 57 percent to $463 billion.
Rising interest rates are the main cause behind the refi plunge. In June, the average rate for a 30-year fixed loan jumped above 4 percent for the first time in 20 months, according to Freddie Mac.
"The minute interest rates stop declining, then the quantity of refinances drops dramatically," said Otto Kobler, branch manager in Santa Rosa for Summit Funding.
Lenders also noted that most people who were interested in refinancing already have done so in the past four years.
For the week ending Dec. 13, the average rate for a 30-year fixed rate was 4.62 percent, according to the Mortgage Bankers Association. The group predicts rates to exceed 5 percent next year and to reach 5.5 percent by the end of 2015.
Lenders said they understand that borrowers prefer lower rates, but the coming increases still offer a silver lining.
"Rates are going up because they economy's doing better," said Tom Duryea, president and CEO of Santa Rosa-based Summit Bank. Though he's been in banking for more than 20 years, he said, "I've never been through such a long period of low rates."
The prelude to that period included a financial crisis that began in the nation's home mortgage industry.
In Sonoma County, one sign of the crisis was the plunge in home values. The median sales price peaked at $619,000 in August 2005, tumbled to $305,000 in February 2009 and ended last month at $450,000.
Another sign of the damage was the number of financially distressed owners who lost their homes.
Since 2007, more than 11,000 Sonoma County homes have been surrendered in foreclosure auctions. Another 4,000 homeowners sold their properties in short sales, where the sales price was less than the amount owed on the mortgage.
Together, that amounts to roughly one in every seven homes with a mortgage.
In response to the crisis, Congress in 2010 passed the Dodd-Frank Act, which among other things established a new agency, the Consumer Financial Protection Bureau. It was charged with preventing a repeat of the mortgage meltdown, with an eye on ending improper lending practices.