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Lending Activity Slows And Unusual Patterns Emerge

Katie Jensen
Dec 02, 2021

The latest trends have reversed patterns seen in early 2019 through early 2021 when lending activity tripled.

KEY TAKEAWAYS
  • 3.59 million mortgages were originated in the third quarter of this year, which is up 3% from last year but down 8% from the previous quarter. This marks the largest quarterly dip in over a year. 
  • For the first time in over two years, total lending decreased for two consecutive quarters.
  • For the first time since the year 2000, lending activity fell in the second and third quarters, which are typically peak buying seasons.
  • These unusual patterns have emerged from the declines in refinance and purchase activity.

The latest trends have reversed patterns seen in early 2019 through early 2021 when lending activity tripled amid various forces that pushed a frenzy in purchases and refinances. The surge came as interest rates hit historic lows and the Coronavirus pandemic spurred a rush of home buying. That spike in demand drove home prices to record highs, making mortgage professionals very happy. But like the ancient proverb says: All good things must come to an end.

Today, ATTOM released its third-quarter 2021 U.S. Residential Property Mortgage Origination Report, showing that 3.59 million mortgages were originated in the third quarter of this year, which is up 3% from last year but down 8% from the previous quarter. This marks the largest quarterly dip in over a year. 

This is the second consecutive quarter showing a dip in mortgage originations, pointing to two unusual patterns in the industry. For the first time in over two years, total lending decreased for two consecutive quarters. More notably, however, is it’s the first time since the year 2000 that lending activity fell in the second and third quarters, which are typically peak buying seasons. 

Right now, with average interest rates remaining below 3% for 30-year home loans, lenders issued $1.15 trillion worth of mortgages in the third quarter, up annually by 11%, but down quarterly by 6%. The quarterly decrease in the dollar volume of loans was the first since the early part of 2020.

These unusual patterns have emerged from the declines in refinance and purchase activity, which made up for the bump in home equity lines of credit. On the refinance side, 1.99 million homes rolled over into new mortgages during the third quarter, which is down 13% from the second quarter and down 3% from the same quarter last year. The total number of refinances declined for the second straight quarter, while the quarterly decrease was the largest in three years. The dollar value of refinance loans was also down 10% from the second quarter of 2021 to $624.1 billion, although still up 1% annually. 

Overall, refinances made up the majority of lending activity during the third quarter, but the share of activity dipped to 55% from 59% in the second quarter this year and the third quarter last year. 

The number of purchase loans also declined as lenders issued 1.46 million mortgages to buyers, down 2% quarterly, though still up annually by 17%. The dollar value of loans taken out to buy properties dipped to $482.6 billion, down 1% quarterly but still up 30% annually.

Meanwhile, home equity lending rose for the second straight quarter, which the market has not seen since mid-2019. The tally of home equity lines of credit, while down by 9% annually, rose by 2% from the second quarter to the third quarter this year, to about $238,500.

The overall dip in lending activity during the third quarter this year reveals that the nation’s appetite for new loans is easing, and the decade-long housing boom may finally be cooling off. 

"The overflow stack of work that was hitting lenders for several years shrank again in the third quarter across the U.S. amid a few emerging trends," said Todd Teta, chief product officer at ATTOM. "It looks more and more like homeowners’ voracious appetites for refinance deals has eased notably, while purchase lending also dipped. It's still too early to say if the trends point to major shifts in lending patterns or the broader housing market boom. But the drop-off is significant, especially for home buying, which could suggest an impending housing market slowdown. We will be watching the lending trends extra closely in the coming months."
 

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