Mortgage Lending Declines to 14 Year Low

It looks like the spring selling season is off to a slow start as a sharp pull back in both refinancing and new loan originations in the first quarter of this year brought mortgage lending to a 14 year low. New increases in interest rates appear to have dented the housing recovery.

Lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.
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The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve’s initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.

The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter.

The lending news could disappoint economists looking for a pickup in housing construction and new-home sales this year that could drive growth as other segments of the economy are showing signs of rebounding after a winter lull.
The numbers raise questions over whether wage and job growth is strong enough for American consumers to shift the housing rebound that began two years ago into second gear. Some investors, who have played an outsize role whittling down an oversupply of homes, have begun to retreat from certain markets where prices have risen sharply. The degree to which traditional buyers, especially at the entry level, are able to pick up the baton could determine the shape of the recovery going forward.

While mortgage rates are still low by historical standards, they’re less useful to traditional buyers because home prices have risen swiftly.

Are you seeing a drop off in sales in your area? We’d like to hear from you.

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  • R. Edgar

    I can’t say I’ve noticed a reduction in my business, but it certainly has not improved lately. Higher mortgage rates are only the tip of the iceberg though, high prices and a lack of inventory have made just as big of an impact, and I can’t see these getting much better in the near future

    • Jamie L.

      I agree that there are many problems with the market at the moment, but I think it’s important that the RE community stays optimistic. Buyers and Sellers alike will be discouraged from entering the market if they think that there are only rough seas ahead.