9-Year Low: Mortgage Origination Volume Plunges In First Quarter, Reports New York Fed

Mortgage News May 25, 2023

In the first quarter of 2023, there was a significant decrease in the volume of mortgage origination, dropping to $324 billion, marking the lowest level in the past nine years.

Mortgage origination volume saw a significant decline in the first quarter of 2023, down 34.9% from the previous quarter and 62.3% from the same quarter last year. This trend has continued for seven consecutive quarters since its peak in Q2 2021, reaching the lowest volume since the 2014 “taper tantrum” period. On the other hand, mortgage balances increased by $121 billion in Q1, totaling $12 trillion by March-end. This growth, although considered healthy, was the smallest increase since Q1 2021. Home equity lines of credit (HELOCs) also grew by $3 billion, marking a fourth consecutive gain after a 13-year downward trend, reaching an outstanding balance of $339 billion.

Economists at the New York Fed conducted an analysis of the refinance boom during the pandemic, finding that around 14 million mortgages were refinanced between Q2 2020 and Q4 2021. This accounted for about one-third of all outstanding mortgage balances, while 17% were refreshed through home sales. Among the refinances, 64% were classified as “rate refinances,” resulting in loan balance increases of less than 5% and an average monthly payment reduction of $220. Loans originated before 2010 had the lowest likelihood of refinancing, while loans from 2010 to 2014 saw a 17% refinancing rate. The majority of refinances involved loans from 2015 onwards.

Following that period, mortgage interest rates experienced a remarkable rebound, rising from historic lows to steep levels. According to Freddie Mac’s mortgage rate data, 30-year fixed rates surged from 2.68% in December 2020 to 6.90% in October 2022. Such a rapid increase hadn’t been witnessed since the early 1980s. As a result, by the first quarter of 2023, very few borrowers had any incentive to refinance their loans or make new purchases, as they would have to give up their exceptionally low mortgage rates for much higher ones.

The New York Fed’s economists emphasized that all of these refinances will continue to impact the market for years to come.

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