MReport September 2022

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44 | M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Refinance Activity Sinks Amid Rising Rates Refinance lending sunk 36% in the second quar- ter, mainly caused by rising rates. A new report from AT- TOM Data paints a bleak picture of the current state of the refi- nance market amid rising interest rates which are expected to be raised by the Federal Reserve at least two more times. As of the end of the second quarter, the U.S. Residential Property Mortgage Origination Report revealed that refinance lending activity dropped 36% quarterly. In total, there were 2.39 million mortgages originated in the second quarter of 2022, a figure which is down 13% from the first quarter and is the fifth quarterly decrease in a row. On a yearly basis, this number is down 40% and is the biggest annual drop since 2014. Most of the decline recorded resulted from another double-digit downturn in refinance activ- ity that outweighed increases in home purchase and home equity loans. The quarter also saw lenders issue $807.8 billion worth of mort- gages, a number which is down 11% from last quarter and 35% year over year. "Mortgage rates that have virtu- ally doubled over the past year have decimated the refinance market and are starting to take a toll on purchase lending as well," said Rick Sharga, EVP of Market Intelligence at ATTOM. "The combination of much higher mortgage rates and rising home prices has made the notion of homebuying simply unaffordable for many prospective buyers, which threatens to drive loan volume down even further as we exit the spring and summer months." Looking deeper, the downturn in total activity resulted in just 941,000 residential loans getting rolled over to new mortgages dur- ing the second quarter. This num- ber, down 36% from last quarter and 60% year over year. The dollar volume of refinance loans stood at $310.1 billion, a number which is down 35% quarterly and 56% yearly. For the first time since early 2019, refinance activity in the second quarter did not represent the largest chunk of mortgages, dropping to 39% of all loans. That was off from 53% in the first quar- ter and from a recent peak of 66% in early 2021. Purchase loan activity, however, increased by 8% quarterly to 1.1 million, representing 46% of all origination activity. The dollar volume of loans taken out to buy residential properties rose to $431.4 billion, up 15% from the first quar- ter of this year, but still down 12% from the second quarter of last year. The best-performing category of loans by far in the second quarter was again home-equity lending. Home Equity Lines of Credit shot up 35% quarterly and 44% annu- ally, to 341,704. "Borrowers looking to tap into their equity should know that HELOC activity has been particu- larly strong among credit unions and community banks, along with a small but growing number of depository banks," Sharga noted. "While nonbank mortgage lenders may begin to more aggressively originate home equity loans, it's not likely they'll be active partici- pants in the HELOC market." Homebuyer Demand Slows; Properties Remaining on Market Longer "The buyers who are still in the game are finally getting a break from bidding wars, which means they can be picky," Raleigh, North Carolina, Red- fin Agent Pam Lewis said. H ome sales showed no signs of stopping their recent descent in July 2022, as sales dropped to their lowest level since the beginning of the pandemic when the market was at a near standstill. According to Redfin, home sales dropped 19.3% year over year in July, and by another measure, home sales dipped 4.1% month over month, the sixth-straight monthly decline recorded by their report. Redfin said that this de- crease comes as some prospec- tive homebuyers were sidelined because they were priced out of the market; others were wary of potential home-value declines in the near future amid early signs of a recession. In addition, home prices decel- erated from their recent meteoric rise only registering a 7.7% gain over the course of the month. Now that price growth is dipping into single-digit territory after two years of double-digit increases represents "slumping" homebuyer demand shown by the fact that homes are also sitting on the market longer than before amid dwindling competition. Sellers are also backing off, as many are becoming hesitant to sell for less than what they would have gotten at the height of the pandemic homebuying frenzy. This is in addition to the fact that many homeowners are staying put because they have a lower mortgage rate than the 5% rates being offered currently. So far, new listings have dropped 13.5% year over year, the biggest decline in the last 12 months. Many of the sellers who did list their homes had to settle for less. Twenty-one percent of sellers dropped their asking price in July, the highest share since at least 2012, when Redfin started tracking this data. "The buyers who are still in the game are finally getting a break from bidding wars, which means they can be picky," Raleigh, North Carolina, Redfin Agent Pam Lewis said. "Three months ago, buyers were saying, 'Get me a building with four walls, and I'll make it work.' Now they have some choices. They don't want a home if it doesn't have the fenced- in yard or guest room on their wish list, and they want a $20,000 price reduction if a home has been on the market for more than a week. I'm telling buyers they're not likely to see their property values decrease over time, but they may not appreciate as fast as homeowners have become accus- tomed to in the past few years."

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