Despite interest rates sinking to 14-month lows earlier this year, overall mortgage originations dipped over the first quarter of the year—and pretty significantly.
According to the latest data from the Federal Reserve Bank of New York, mortgage originations fell to $344 billion for Q1 2019, down nearly $60 billion from last quarter and the poorest-performing quarter since mid-2014. It’s also the second consecutive quarter that originations have decreased.
Tight underwriting standards are one of the culprits, according to the Fed. The average mortgage borrower had a credit score of 759 last quarter—widely considered “prime” by most lenders. Only one in 10 mortgage borrowers last quarter had a credit score under 647. The majority of borrowers had at least a 700 score or higher.
This chart shows the breakdown of credit scores for mortgage borrowers.
Courtesy of the Federal Reserve Bank of New York
Home equity lines of credit also dropped for the quarter, falling $6 billion to $406 billion total. Balances on HELOCs have been declining since 2009.
Overall mortgage participation is down, too. At the end of Q4 2018, just 26% of Americans had a mortgage—the lowest rate in 20 years. The number of Americans with a mortgage loan has been steadily declining since 2006 when it peaked at 34%.
This graph shows the number of Americans with mortgage loans, as well as other forms of debt.
Courtesy of the Federal Reserve Bank of New York
If recent surveys are right, the downtrend will likely continue. According to the latest Housing Trends Report from the National Association of Home Builders, only 13% of adults plan to purchase a home within the next year.
Commercial Activity is Up
Things aren’t as bleak in the commercial sector, though. According to the Mortgage Bankers Association, commercial and multifamily originations jumped 12% over the year last quarter. Originations were up 73% on industrial properties, 41% on health care properties and 14% on hotels.
As Jamie Woodwell, vice president of commercial real estate research for MBA explains, “First quarter volumes were higher for nearly every property type, and double-digit growth in loan volume for Fannie Mae and Freddie Mac led the increase among capital sources. Low interest rates and strong property values continue to make commercial real estate an attractive market for borrowers.”
According to the Fed’s Senior Loan Officer Opinion Survey, banks actually tightened lending standards on these types of loans last quarter as well. Subsequently, they also eased lending terms, increasing maximum loan sizes, loan maturity dates and more.