U.S. Residential Mortgage Lending Declines in Q3 Amid Rate Surge

Residential Mortgage Lending Experiences Decline in Q3 Amid Rate Surge

Residential mortgage lending in the United States witnessed a downturn in the third quarter of 2023, as revealed by ATTOM’s latest U.S. Residential Property Mortgage Origination Report. The report highlighted a total of 1.54 million U.S. mortgages secured by residential properties (ranging from 1 to 4 units) issued during this period, reflecting a 3 percent decrease from the previous three-month period. This decline marked the ninth downturn in the last ten quarters, with the only exception being a spike in the second quarter of the year.

The third-quarter decrease occurred against the backdrop of rising mortgage rates and home prices, resulting in a 26 percent drop in total residential lending activity compared to the previous year and a significant 63 percent decline from the peak observed in 2021.

The lending landscape during the third quarter saw a mixed bag of results across major categories. While refinancing activity experienced a 5 percent increase, reaching approximately 516,500 loans, lending to homebuyers and home-equity credit lines both saw a 7 percent decrease, with around 752,000 loans issued to homebuyers and 272,000 home-equity credit lines.

In terms of monetary value, lenders disbursed $482 billion worth of residential mortgages in the third quarter of 2023, marking a 4 percent decline from the second quarter and a substantial 28 percent drop from the same period last year.

Despite these shifts, the proportion of different types of loans remained relatively consistent compared to the previous quarter, with purchase loans accounting for roughly half of all mortgages issued, followed by refinance packages at one-third, and home-equity loans at just under 20 percent. However, this distribution differed significantly from two years ago, when refinance deals dominated the market, comprising two-thirds of all lending activity.

Rob Barber, CEO at ATTOM, commented on the third-quarter performance, noting the impact of higher rates and other factors on borrowers. He highlighted the resilience of refinancing activity amid rising interest rates, suggesting that homeowners may have tapped into their growing equity. Looking ahead, Barber anticipated a potential further reduction in purchase lending during the fall, while borrowing by homeowners was expected to remain stable if interest rates stabilize.

The third-quarter lending trends coincided with another increase in home-mortgage rates over the summer, contributing to a surge in borrowing costs following a slight dip in the first and second quarters of 2023. Average rates for 30-year fixed loans surpassed 7 percent, more than double the historically low rates observed two years earlier. Additionally, ongoing supply constraints in the housing market across the U.S. limited the number of buyers seeking mortgages to purchase homes.

The report also analyzed lending activity across different metropolitan statistical areas, revealing a 3 percent decline in total residential mortgages issued from the second to the third quarter of 2023. The largest decreases were observed in St. Louis, MO; Atlanta, GA; Naples, FL; Salisbury, MD; and Barnstable, MA, among others. Conversely, some metro areas, such as Buffalo, NY; Grand Rapids, MI; and Honolulu, HI, experienced increases in lending activity during the same period.

Overall, the third quarter of 2023 saw a continued downturn in residential mortgage lending, reflecting the impact of rising rates and evolving market dynamics on borrowing behavior across the United States.

Refinance Mortgage Originations Show Second Consecutive Quarterly Increase

In the third quarter of 2023, lenders issued a total of 516,461 residential refinance mortgages, marking a 5 percent increase from the previous quarter’s 490,412. This uptick represents the second consecutive quarterly rise, following a downward trend that hit a historic low in early 2023.

Despite the recent gains, refinance activity remains subdued compared to previous years. The number of refinance packages is down by 25 percent from the third quarter of 2022, and a staggering 81 percent drop from the peak observed in the first quarter of 2021, when 2,744,788 refinancing transactions were recorded.

In terms of dollar volume, refinance mortgages amounted to $151.8 billion in the third quarter of 2023, reflecting a 4 percent increase from $145.4 billion in the second quarter. However, this figure is still substantially lower, down 33 percent, from the $225.8 billion recorded in the third quarter of 2022.

Refinancing activity experienced quarterly increases in 153 out of 201 metro areas analyzed across the United States. However, on an annual basis, refinance activity remained down in 195 of these metros.

Notable quarterly increases were observed in various metro areas, including Huntsville, AL (up 180.8 percent), Cedar Rapids, IA (up 116 percent), South Bend, IN (up 68.6 percent), Kingsport, TN (up 54.3 percent), and Springfield, IL (up 48.7 percent).

Among metro areas with a population of at least 1 million, Tucson, AZ, saw a significant increase of 24.3 percent in refinance activity from the second to the third quarter of 2023. Honolulu, HI, Indianapolis, IN, Houston, TX, and Dallas, TX, also experienced notable gains.

Conversely, certain metro areas witnessed declines in the number of refinance loans. St. Louis, MO, recorded a decrease of 26.8 percent, followed by San Francisco, CA (down 11.2 percent), San Jose, CA (down 11.2 percent), San Diego, CA (down 9.4 percent), and Seattle, WA (down 6.3 percent).

Overall, while the third quarter of 2023 showed a positive trajectory in refinance mortgage originations, activity levels remained below those seen in previous years, reflecting ongoing shifts in the housing market and economic conditions.

Purchase Mortgage Originations Decline in Third Quarter

Following a significant spike in the second quarter of 2023, loans extended to homebuyers reverted to a downward trajectory in the third quarter, decreasing by 7 percent. Lenders originated a total of 751,720 purchase mortgages during this period, down from 807,729 in the previous quarter.

On an annual basis, the number of purchase mortgages declined by 25 percent compared to the third quarter of the previous year, and by 50 percent from the peak observed in the spring of 2021.

In terms of dollar volume, purchase loans amounted to $283.1 billion in the third quarter of 2023, reflecting an 8 percent decrease from $306.8 billion in the second quarter, and a 24 percent decrease from $374.3 billion in the third quarter of 2022.

Residential purchase-mortgage originations experienced quarterly declines in 137 out of 201 metro areas covered in the report, accounting for 68 percent of the markets analyzed. Additionally, annual decreases were observed in 187 of these markets, totaling 93 percent.

Among the metro areas that witnessed the largest quarterly declines were Atlanta, GA (down 46.3 percent), St. Louis, MO (down 35.3 percent), Augusta, GA (down 30.8 percent), Greeley, CO (down 28 percent), and Gulfport, MS (down 23.7 percent).

Apart from Atlanta and St. Louis, significant quarterly decreases were noted in Orlando, FL (down 19.4 percent), Phoenix, AZ (down 19.3 percent), and Austin, TX (down 17.8 percent) among metro areas with a population of at least 1 million.

Conversely, certain metro areas experienced increases in purchase lending during the third quarter of 2023. Buffalo, NY, saw a notable rise of 38.3 percent, followed by Honolulu, HI (up 23.6 percent), Rochester, NY (up 16.8 percent), Grand Rapids, MI (up 14.7 percent), and New York, NY (up 14.4 percent).

Decrease in HELOC Lending Across Majority of U.S.

During the third quarter of 2023, there was a notable decline in home-equity lines of credit (HELOCs), partially reversing the gains seen in the second quarter. Homeowners obtained 271,647 HELOC loans in the third quarter of 2023, marking a 7 percent decrease from the 291,218 loans acquired in the second quarter and a significant drop of 29 percent from the 380,593 loans obtained a year earlier.

In terms of volume, HELOC loans amounted to $47.5 billion in the third quarter of 2023, down from $52.1 billion in the previous quarter, representing a 9 percent decline. This volume also decreased annually by 36 percent.

HELOCs constituted 17.6 percent of all loans in the most recent quarter, a slight decrease from 18.3 percent in the prior quarter but still four times higher than the levels recorded in the early part of 2021.

Across the metro areas analyzed, HELOC mortgage originations experienced a decrease from the second quarter of 2023 to the third quarter of 2023 in 67 percent of the regions. Among metro areas with a population of at least 1 million, the largest quarterly declines were observed in St. Louis, MO (a 39 percent decrease in home-equity credit lines), Pittsburgh, PA (down 33.7 percent), Honolulu, HI (down 27.9 percent), Boston, MA (down 15.3 percent), and Minneapolis, MN (down 15.2 percent).

Conversely, several metro areas witnessed an increase in HELOC activity during the same period. Notable quarterly increases in HELOC lending among metro areas with a population of at least 1 million and sufficient data to analyze were recorded in Tulsa, OK (up 15.5 percent), Grand Rapids, MI (up 11.4 percent), Tucson, AZ (up 7.3 percent), San Antonio, TX (up 7.1 percent), and Hartford, CT (up 5.6 percent).

Decrease in Median Purchase Loan Amounts with Higher Down Payment Percentages

In the third quarter of 2023, there was a marginal decline in the median loan amount for single-family homes nationwide, accompanied by an uptick in the typical down payment percentage for home acquisitions.

For homes acquired with financing during this period, the median loan amount stood at $319,500. This marked a slight decrease of 0.9 percent from $322,500 in the preceding quarter. However, it represented a modest increase of 1.1 percent compared to the figure of $316,000 recorded a year earlier.

Meanwhile, the median down payment for single-family homes and condos purchased with financing in the third quarter of 2023 amounted to $35,050. This indicated a notable surge of 12.2 percent from $31,250 in the second quarter of 2023. With the pace of home price appreciation moderating across the country, the typical down payment rose as a percentage of the median purchase price. It accounted for 9.2 percent of the median price in the third quarter of 2023, reflecting an increase from 8.2 percent in the prior quarter and remaining relatively consistent with the 9.3 percent level observed a year earlier.