U.S. Residential Mortgage Originations Plummet to Lowest Level in 23 Years

Total Mortgage Lending Activity Dwindles by 70% Over Two Years

According to the latest quarterly 2023 U.S. Residential Property Mortgage Origination Report by ATTOM, a mere 1.25 million mortgages secured by residential property (1 to 4 units) were originated in the first quarter of 2023 in the United States, marking the lowest point since late 2000.

This figure represents a 19% decline from the fourth quarter of 2022, continuing the eighth consecutive quarterly decrease. Moreover, it reflects a significant 56% drop from the first quarter of 2022 and a staggering 70% decline from the peak reached in the first quarter of 2021.

The persistent sharp decline in residential lending is attributed to downturns in both refinance and purchase loan activity, along with the second consecutive quarterly drop-off in home-equity lending.

This contraction in lending activity is occurring against the backdrop of a slowdown in the 11-year U.S. housing market that began in the middle of the previous year and extended into 2023. Factors contributing to this decline include elevated mortgage rates, consumer price inflation, and broader economic uncertainty.

During a period when average interest rates remained double what they were a year earlier, lenders issued just $388 billion worth of residential mortgages in the first quarter of 2023. This marks a quarterly decrease of 20% and an annual decrease of 58%.

This overall activity includes 595,253 loans granted to home purchasers in the first quarter of 2023, down 19% from the fourth quarter of 2022 and 44% from the first quarter of 2022, reaching the lowest point since early 2014. The dollar volume of purchase mortgages dropped 18% quarterly and 45% annually, to $216 billion.

Refinance activity also saw a significant decline, with only 407,956 mortgages being refinanced – the lowest amount seen this century. This reflects an 18% quarterly decrease, a 73% annual decrease, and an 85% decrease from the first quarter of 2021. The value of refinance packages dropped 21% from the prior quarter and 74% annually, to $127 billion.

Home-equity lending followed suit, experiencing a 23% decrease in the first few months of 2023, totaling 245,071. This decline marks the second consecutive quarterly decrease following a year and a half of gains.

While lending activity continued to decline across the board in early 2023, the distribution of different types of home loans remained relatively stable.

Purchase loans continued to represent about half of all mortgages issued in the first quarter of 2023, with refinance packages comprising a third and home-equity loans making up 20%. However, this distribution reflects a significant shift from two years ago when refinance deals accounted for two-thirds of all activity and purchase loans comprised just one-third.

Rob Barber, CEO at ATTOM, commented, “Lenders saw opportunities dwindle even more during the first quarter as the longest slowdown in mortgage activity in at least 20 years continued. Things remain uncertain in the near future, with the potential for interest rates and inflation to go either way, but the Spring buying season will be a key indicator of whether things may turn around.”

The across-the-board slump in mortgage activity reflects a combination of economic forces that have stalled the nation’s decade-long housing market boom, thereby impacting the mortgage industry.

These forces include doubled mortgage rates, high consumer price inflation, a historically tight supply of homes for sale, and broad economic uncertainty, collectively diminishing the attractiveness of refinancing or borrowing against home equity and raising the cost of buying a home.

Total Residential Mortgage Lending Activity Plummets by 70% in Just Two Years

In the first quarter of 2023, banks and other lenders issued a total of 1,248,280 residential mortgages, marking the lowest figure recorded since the fourth quarter of 2000. This latest number reflects a substantial 19.4% decrease from the 1,548,372 mortgages issued in the previous quarter, a significant 55.6% drop from the 2,810,051 mortgages issued in the first quarter of 2022, and a staggering 70% decline from the peak of 4,154,015 mortgages issued in early 2021. The eighth consecutive quarterly decrease extended the longest run of declines witnessed this century, while the annual downturn marked the largest since at least 2001.

The total lending volume in the first quarter amounted to $387.8 billion, down by 19.8% from $483.7 billion in the previous quarter and a significant 58% lower than the $923.8 billion recorded in the first quarter of 2022.

Across the United States, overall lending activity decreased from the fourth quarter of 2022 to the first quarter of 2023 in 167 out of 173 metropolitan statistical areas (MSAs) with a population of 200,000 or more and at least 1,000 total residential mortgages issued in the first quarter.

It also experienced an annual decline in every one of these metro areas. Notably, total lending activity dropped by at least 15% quarterly in 109 of the analyzed metros, accounting for 63% of the total.

The most significant quarterly decreases were observed in Buffalo, NY (total lending down 47.6% from the fourth quarter of 2022 to the first quarter of 2023); Albany, NY (down 46.4%); Toledo, OH (down 43.5%); Knoxville, TN (down 42.7%); and St. Louis, MO (down 39.1%).

Among metro areas with a population of at least 1 million, those experiencing the largest decreases in total loans from the fourth quarter of 2022 to the first quarter of 2023 were Rochester, NY (down 34.7%); Minneapolis, MN (down 34.1%); and Indianapolis, IN (down 32.5%). Interestingly, no metro areas with a population of at least 1 million witnessed an increase in total lending during this period.

However, there were some smaller metro areas where lending did increase quarterly, including Fort Myers, FL (up 27.8%); Lakeland, FL (up 21%); Sarasota-Bradenton, FL (up 6.6%); Augusta, GA (up 6.1%); and Montgomery, AL (up 1.6%).

Residential Mortgage Refinancing Hits Record Low in the 21st Century

The residential mortgage refinancing market witnessed a historic low in the first quarter of 2023, with lenders issuing only 407,956 refinanced mortgages. This figure marks the lowest point recorded since at least 2000, reflecting an 18.2% decline from the 498,732 mortgages issued in the fourth quarter of 2022 and a substantial 72.5% drop from the 1,485,090 mortgages issued in the first quarter of 2022.

Furthermore, it represents an 85.2% plummet from the peak of 2,749,578 mortgages reached in early 2021. The eighth consecutive quarterly decrease in refinance deals underscores the sustained downturn in this sector.

The total dollar volume of refinance packages in the first quarter of 2023 amounted to $126.4 billion, down by 20.7% from $159.4 billion in the previous quarter and a significant 73.8% decrease from $483.1 billion in the first quarter of 2022.

Refinancing activity dwindled across the United States, with decreases observed in 163 out of 173 metropolitan statistical areas (MSAs) with sufficient data for analysis. In 100 of these metros, the decline was at least 15% from the previous quarter, accounting for 58% of the total. The most substantial quarterly decreases were noted in metro areas such as Ann Arbor, MI; Albany, NY; Toledo, OH; Buffalo, NY; and Dayton, OH.

Metro areas with populations of at least 1 million also experienced significant declines in refinance activity, including Detroit, MI; St. Louis, MO; Minneapolis, MN; and Virginia Beach, VA.

However, some metro areas witnessed an increase in refinance loans, including Fort Myers, FL; Honolulu, HI; Amarillo, TX; Eugene, OR; and El Paso, TX.

Refinance packages constituted only 32.7% of all loan originations in the first quarter of 2023, a decline from 32.2% in the previous quarter and a substantial drop from 52.8% in the first quarter of 2022 and 66.2% in early 2021.

Decline in Purchase Mortgages Since 2021 High

Lenders originated 595,253 purchase mortgages in the first quarter of 2023, representing an 18.6% decrease from 731,083 in the fourth quarter of 2022. This marks the sixth drop in the last seven quarters and a significant 44.3% decline from 1,067,746 a year earlier. Additionally, it reflects a substantial 60% decrease from the peak of 1,488,131 mortgages issued in the second quarter of 2021.

The total dollar volume of purchase loans in the first quarter of 2023 amounted to $215.7 billion, down by 18% from $263 billion in the prior quarter and a significant 44.5% decrease from $388.8 billion a year earlier.

Purchase-mortgage originations declined from the fourth quarter of 2022 to the first quarter of 2023 in 154 of the metro areas analyzed, accounting for 89% of the total, and declined annually in all metro areas.

The largest quarterly decreases were observed in metro areas such as Buffalo, NY; Indianapolis, IN; Anchorage, AK; St. Louis, MO; and Rochester, NY.

Despite these declines, some metro areas witnessed increases in purchase lending, including Tucson, AZ; Tampa, FL; Orlando, FL; Detroit, MI; and Phoenix, AZ.

Home-purchase loans accounted for 47.7% of all loan originations in the first quarter of 2023, marking a significant increase from 38% in the first quarter of 2022 and 29.2% in early 2021.

Decline Continues: HELOC Lending Falls for Second Consecutive Quarter

The number of home-equity lines of credit (HELOCs) originated on residential properties experienced a notable decline in the first quarter of 2023, totaling 245,071. This figure marks a significant decrease of 23.1% from the 318,557 HELOCs originated in the prior quarter, continuing the downward trend observed in the previous quarter. Furthermore, it represents a 4.7% drop from the 257,215 HELOCs originated in the first quarter of 2022.

The total dollar volume of HELOC loans in the first quarter of 2023 amounted to $45.8 billion, down by 25.3% from $61.3 billion in the fourth quarter of 2022 and a decrease of 11.9% from $51.9 billion in the first quarter of 2022.

HELOCs comprised 19.6% of all loans in the first quarter, down from 20.6% in the previous quarter but still substantially higher compared to the levels observed in early 2021.

According to Rob Barber, CEO at ATTOM, “Home-equity borrowing had been the only thing even partly propping up the home-loan business in the past year as owners were taking advantage of rising equity to draw cash out of their properties for home improvements or other expenses or investments. Now, that also is clearly taking a hit.”

The decline in HELOC mortgage originations was widespread across metro areas, with decreases observed in 94% of the areas analyzed. The most substantial declines in metro areas with populations of at least 1 million were noted in Buffalo, NY; Rochester, NY; St. Louis, MO; Tulsa, OK; and Austin, TX.

Notably, no metro areas analyzed with a population of at least 1 million witnessed quarterly increases in HELOCs, underscoring the widespread nature of the decline in this segment of lending.

FHA and VA Loans Gain Slightly in Market Share

Mortgages supported by the Federal Housing Administration (FHA) continued their upward trajectory, marking the sixth consecutive quarter of growth in their portion of all lending.

In the first quarter of 2023, FHA-backed loans represented 12.9% of all residential property loans originated, totaling 161,639 loans. This figure reflects an increase from 11.9% in the fourth quarter of 2022 and 10.4% in the first quarter of 2022.

Similarly, residential loans backed by the U.S. Department of Veterans Affairs (VA) also saw a slight uptick in their portion of all residential property loans originated. VA loans accounted for 5.5% of total originations in the first quarter of 2023, totaling 68,606 loans.

This represents an increase from 5.3% in the previous quarter, marking the third consecutive quarterly increase. However, it is slightly lower than the 5.6% share observed a year earlier.

Clare Trapasso
Clare Trapasso
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