Boiling housing market fuels record mortgages

Americans are borrowing more homes than ever before in 2021.

Mortgage lenders issued $ 1.61 trillion in purchase loans in 2021, according to estimates by the Mortgage Bankers Association. This is a slight increase from $ 1.48 trillion in 2020 and above the previous high of $ 1.51 trillion in 2005.

The mortgage boom reflects a booming housing market and the corresponding rise in prices over the past year. Many of the forces that pushed Americans into the housing market during the first months of the pandemic – low interest rates and a desire for bigger homes – continue to drive up prices and mortgage balances. In addition, many Americans got raises and racked up savings during the pandemic, empowering them to buy.

“All of that extra income is going somewhere, and a lot of it has been spent on housing,” said Taylor Marr, deputy chief economist at Redfin Corp., a real estate brokerage firm.

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

A strong job market and wage increases across a range of industries have prompted some potential buyers to enter the housing market. Wages of all workers in the private sector rose 4.6% year-over-year in the third quarter, according to the Bureau of Labor Statistics.

The US mortgage market involves some key players who play an important role in the process. Here’s what investors need to understand and what risks they take when investing in the industry. WSJ’s Telis Demos explains. Photo: Getty Images / Martin Barraud

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

Neel Kumar started looking for accommodation this summer after accepting a new job with a substantial pay rise. He found one in a community of homes under construction about 30 miles from his hometown of Austin, Texas. Without the increase, Mr. Kumar said he would not have been able to pay for the $ 405,000 house.

Young buyers like Mr. Kumar, 27, have helped boost the housing market in recent years. According to CoreLogic, Millennials, born in the early ’80s to mid’ 90s, submitted 67% of all first mortgage applications in the first eight months of 2021.

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

“It was a pretty crazy feeling,” he said. “Like, damn it, this is actually happening. “

Growth in purchase mortgages partially offset a decline in refinancing, which fell to about $ 2.3 trillion in 2021, from $ 2.6 trillion a year earlier. Total creations have fallen to about $ 3.9 trillion from their record high of $ 4.1 trillion in 2020.

Rising mortgage rates have slowed the wave of refinancing that has driven the mortgage boom since the spring of 2020. When rates rise, fewer homeowners can reduce their monthly payments by refinancing. The Federal Reserve is expected to hike rates three times in 2022, pushing mortgage rates even higher.

About 59% of the $ 3.9 trillion in mortgages issued in 2021 were refinancings, up from 64% in 2020. The share of refinancings is expected to fall to 27% by 2023, and the volume is expected to fall by about 63% in 2020. 2022.

Economists don’t expect rate hikes to discourage potential homebuyers. The average rate for a 30-year fixed-rate mortgage still hovers around 3%, a low level by historical standards.

Yet soaring home prices have overtaken rising incomes and low interest rates, making homeownership beyond the reach of many Americans.

Mortgages are less affordable relative to income than at any time since 2008, according to the Federal Reserve Bank of Atlanta. At the start of 2021, Americans needed about 29% of their income to cover a mortgage payment on a median-priced home, the Atlanta Fed estimated. This figure rose to 33% in October.

Write to Orla McCaffrey at [email protected]

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