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Market conditions affecting mortgage demand, access?

September 18, 2018

There have been many changes to the housing market over the course of 2018 but perhaps the most prevalent one - which has had the widest-reaching impact overall - is that affordability has declined significantly thanks to rising rates and prices. As a consequence, it seems that many Americans are rethinking whether getting into the mortgage market is right for them at this time, and that may be particularly true for current homeowners who were considering a refinance.

"Nearly 1.53 million mortgages were originated."

While nearly 1.53 million new mortgages were originated nationwide from April to June this year, that number was down 16 percent from the previous quarter and 27 percent year-over-year, according to the latest U.S. Residential Property Loan Origination Report from ATTOM Data Solutions. The total number of completed mortgage originations was the lowest level observed in more than four years.

And although one might expect a fairly broad disparity between purchase and refinance originations overall, they both declined by similar amounts on an annual basis, the report said. Purchase loans slipped 28 percent year-over-year and only 1 percent from the first quarter, while refinances were down 27 percent and 26 percent on those bases, respectively.

"Rising mortgage rates are cooling mortgage demand across the board, with overall originations down to their lowest level since 2014 - the last time we saw more than six consecutive months with average 30-year fixed mortgage rates above 4 percent," said Daren Blomquist, senior vice president at ATTOM Data Solutions. "Meanwhile buyers are upping the ante when it comes to down payments, evidenced by the record-high median down payment for homes purchased in the quarter, and an increasing number of buyers are getting help from co-buyers."

Meanwhile, only 4 of the 173 major metropolitan areas ATTOM examined saw year-over-year increases in mortgage originations of all types, though nine of them saw growth for purchases and 16 experienced more refinances, the report said.

A continuing drift
While all of the above data is from the second quarter, there has also been a steady trend in the third quarter of fewer people even applying for mortgages, and that continued in the week ending Sept. 7, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association. That seven-day period, which included an adjustment for the Labor Day long weekend, saw a 1.8 percent drop in seasonally adjusted mortgage application filings, and in particular refinances suffered.

"Refinance applications slid 6%."

Indeed, while purchase requests actually ticked up 1 percent on a weekly basis and 4 percent year-over-year, refinance applications slid 6 percent, the report said. In doing so, they reached the lowest level observed in the housing market seen since the final month of 2000.

As a consequence of these shifts, refinances made up just 37.8 percent of all mortgage applications filed during the week in question, down from the previous 38.9 percent, the data showed.

This came as the average mortgage rate on 30-year fixed-rate home loans - most often used in home purchases - came to 4.84 percent, up from 4.8 percent the week before, the report said. There was a larger increase in terms of both raw and proportional growth, for 15-year FRMs - which are typically used in refinances. These grew to 4.28 percent from the previous 4.23 percent.

Access is down
Meanwhile, it's worth noting that lenders seem to be tightening the purse strings for mortgage credit in general these days, according to the MBA's latest Mortgage Credit Availability Index. In August, the MCAI declined 0.3 percent to a reading of 183.5 - set against a benchmark of 100 established in March 2012. It was the first time in four months that lenders made it more difficult to obtain mortgage credit.

This decline was a bit of a mixed bag, the report said. Credit availability slipped for jumbo mortgages (down 2.1 percent, reversing a trend of broadening availability for these more expensive home loans) but grew for those with conforming loan balances (up 0.8 percent), and government-backed mortgage availability also grew 0.1 percent.

"Overall credit availability saw a slight decrease in August, for the first time in four months, as the jumbo index retreated from its record high in July," said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. "Strong month-over-month increases in the jumbo index reversed because of a reduction in the number of jumbo programs. The decline in jumbo credit availability was offset partially by an increase in the conforming index, which increased over the month due to the addition of low down payment programs."

However, because the MCAI is north of 100, this means it's still significantly easier to get mortgage credit than it was a few years after the end of the recession, the report said. But if the MCAI benchmark had existed prior to the economic downturn, readings would have typically been in excess of 800, indicating just how tight mortgage credit still is even eight years after the recession.

Lenders see a trend
These market conditions aren't likely to change much in the months ahead, if the latest Mortgage Lender Sentiment Survey from Fannie Mae is any indication. For the whole of the third quarter, lenders generally believe they'll see fewer profits as interest in mortgages broadly drops. This comes as lenders saw more demand for basically all types of purchase loans, indicating just how much interest in refinancing is dropping as rates rise.

Consequently, lender expectations for growth from July to September hit the lowest level seen for any third quarter in the five years the survey has existed, the report said. Meanwhile, though, lenders also say they're less likely to ease credit standards going forward, despite the potential that broadening them would have for bringing more people into the mortgage market.

With all these conditions in mind, it's still wise for consumers to make sure they can truly afford to buy a home in today's market, because rising rates and prices may have made doing so less affordable over just the last few months. Consequently, shoppers must weigh the benefits of getting into the market sooner than later.




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