Red-Hot Housing Market Fuels Mortgage Borrowing Record

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Lenders to issue an estimated $1.61 trillion purchase mortgages in 2021

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The mortgage boom reflects a thriving housing market and a similar uptick in prices over the past year. Many of the forces that pushed Americans into the housing market in the early months of the pandemic — lower interest rates and the desire for bigger homes — continue to drive up prices and mortgage balances. What’s more, many Americans grew and built up savings during the pandemic, giving them the means to buy.

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“All this extra income goes somewhere, and a lot of it goes to housing,” said Taylor Marr, deputy chief economist at real estate brokerage Redfin Corp.

Home price growth has slowed in recent months but remains close to record levels. Home prices rose 19.1% in the year ended October. Sales of existing homes in 2021 were expected to reach their highest level since 2006.

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A strong labor market and wage increases across a range of industries have prompted some potential home buyers to venture into the housing market. According to the Bureau of Labor Statistics, wages for all private sector workers increased 4.6% year over year in the third quarter.

“Buying a home is really a statement of confidence in your job status, your financial situation, your family situation,” said Mike Fratantoni, MBA’s chief economist.

Neil Kumar started looking for a home this summer after accepting a new job with a substantial pay increase. He found one in a community of homes under construction about 30 miles outside his hometown of Austin, Texas. Without the increase, Mr. Kumar said he would not be able to make payments on the $405,000 house.

Small buyers like Mr. Kumar, 27, have helped supercharge the housing market in recent years. According to CoreLogic, Millennials, who were born from the early 1980s to the mid-90s, submitted 67% of all first-time mortgage applications in the first eight months of 2021.

Mr. Kumar got the keys to his house at the end of December.

“It was a very crazy feeling,” he said. “Like, holy crap, this is really happening.”

The increase in purchase mortgages partially offset the decline in refinancing, which fell from an estimated $2.3 trillion in 2021 to $2.6 trillion a year earlier. Total originations fell from their 2020 record of $4.1 trillion to an estimated $3.9 trillion.

Rising mortgage rates have slowed the wave of refinancing that has fueled a boom in mortgage lending since the spring of 2020. When rates rise, fewer homeowners can lower their monthly payments by refinancing. The Federal Reserve is expected to raise rates three times in 2022, which will push mortgage rates even higher.

Of the $3.9 trillion mortgages issued in 2021, 59% were refinanced, down from 64% in 2020. The refinancing share is expected to fall to 27% by 2023, and volume is expected to fall to 63% in 2022.

Economists don’t expect a rate hike to turn off potential home buyers. The average rate on a 30-year fixed mortgage is still hovering around 3%, well below historical standards.

Still, rising home prices made home ownership out of reach for many Americans with rising incomes and low interest rates.

According to the Federal Reserve Bank of Atlanta, mortgages are less affordable for income than at any time since 2008. The Atlanta Fed estimates that by early 2021, Americans will need about 29% of their income to cover mortgage payments on an average-priced home. By October, it had increased to 33 per cent.

Write Orla McCaffrey [email protected] Feather


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