Mortgage originations fell in the third quarter, according to data from ATTOM, a curator of nationwide real estate data. Rising mortgage rates have dampened buyer enthusiasm, leading to unprecedented price growth in 2021. Enthusiasm for refinancing has also waned significantly. However, sources of home loans (HELOC) have been growing steadily over the last five quarters.
High mortgage rates are cooling the real estate market
The US housing market was very hot in 2021, resulting in a staggering 18.8% increase in home prices for the year.
But when inflation rates spiked, so did mortgage rates. According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage is 6.61%, more than double the average rate of 3.10% a year ago.
The result is a sudden reaction from buyers and homeowners. According to ATTOM, 1.97 million mortgages were created in the third quarter of 2022, secured by residential properties between one and four units. That number is down 19% from the second quarter of 2022 and 47% from the third quarter of 2021 – the biggest annual decline in growth since 2001.
The ATTOM data also shows that home prices are finally starting to cool down, as the average loan amount to finance a home purchase has fallen to a three-year low, even as the average down payment has fallen.
Homeowners are also much slower at refinancing their mortgage loans . Home lenders originated 660,767 refinance loans in the third quarter, 31% down from the second quarter of 2022 and nearly 68% less than the same period last year. It is the lowest quarterly total since the first quarter of 2019.
Refinancing activity is expected to decline further as long as mortgage rates remain high.
Homeowners Leverage Their Newfound Equity Through HELOCs
As home prices skyrocketed in 2021, homeowners’ equity rose as well. While there’s no point in refinancing a mortgage loan below 4% at existing interest rates, homeowners aren’t leaving their equity where it is.
Rather than taking advantage of cash refinancing, homeowners are increasingly turning to HELOCs , which have seen lending increases in five of the past six quarters. Lenders issued 364,921 HELOCs in the third quarter, up more than 5% from the second quarter and nearly 48% from the same period last year.
The main benefit of a HELOC is pure interest payments, while the loan is in the drawdown period and the borrower only needs to pay interest on the amount drawn from his line of credit. However, HELOCs typically have variable interest rates that can fluctuate over time. So it’s important to research and compare HELOC rates before signing up and be careful with your sweepstakes so you don’t overcharge yourself.