Higher Mortgage Rates and Low For-Sale Supply Take a Bite Out of Mortgage Originations

Mortgage Origination Update for 2018

By Molly Boesel Consumer Behavior, Mortgage Finance

Higher mortgage rates and low supply of homes for sale had a negative impact on mortgage originations in 2018, while home price increases helped purchase originations post a small increase. The dollar amount of originations fell by 8 percent[1] in 2018 compared with the prior year. Purchase originations increased by 2 percent, and refinance origination dollars fell by 23 percent. The dollar amount of originations was $1.59 trillion, down from $1.74 trillion in 2017. From 2014 to 2017, CoreLogic public records originations were 2 percent higher than those reported in the Home Mortgage Disclosure Act (HMDA), therefore the CoreLogic numbers imply $1.56 trillion for 2018 HMDA originations. HMDA has been estimated to capture about 95 percent of mortgage originations, which would imply total mortgage origination in 2018 were $1.64 trillion.

Mortgage Originations React to 30-Year Rate

Higher mortgage rates in 2018 made rate and term refinancing a less attractive option. The 30-year mortgage rate averaged 4.54 percent in 2018, up from an average of 3.99 percent in 2017. Even with the end of year dip in rates in 2018, Q4 2018 mortgage rates were higher than Q4 2017 mortgages rates – up to 4.74 percent from 3.89 percent. According to CoreLogic servicing data[2], most mortgage holders already have mortgages with low interest rates – at the end of 2018, 63 percent of active mortgages and 72 percent of outstanding mortgage debt had a mortgage rate below 4.5 percent.  The dwindling amount of overall refinances bumped up the share of mortgages with a cash out refinance. The cash out share of all refinances was 37.8 percent in 2018, up from 31.5 percent in 2017, and the highest annual share in 14 years.[3] Cash out refinances as a share of total originations was 13.4 percent, up slightly from 13.2 percent in 2017.

The share of purchase originations for condos and co-ops fell a bit to 8.3 percent in 2018 from 8.9 percent the prior year. The condo/co-op share has been declining steadily since 2007 when it reached 13.3 percent of originations for the year.

The share of purchase originations funded by FHA or VA fell to 21 percent in 2018 from 24 percent in 2017. The government share of purchase originations hit a low of 3 percent in 2005 and a high of 38 percent in 2009.

Cash Out Refinancing Up in 2018

On average, borrower downpayments increased a bit in 2018, most likely partly due to the lower government share of home-purchase originations. In 2017, the average downpayment was 14.1 percent, compared with 14.4 percent in 2018. As for the types of loans borrowers took out in 2018, they overwhelmingly favored fixed-rate loans. The adjustable-rate mortgages were only 5.9 percent of the number of purchase loans for 2018, a far cry from the high of 44 percent in 2005.

Looking forward, if mortgage rates stay relatively low throughout 2019, refinancing volumes may improve. Low mortgage rates coupled with slowing home price increases may help increase home sales as well in 2019, leaving the dollar volume of originations down only slightly compared with 2019.

[1] While data collections for 2017 mortgages originations is largely complete, 2018 data is subject to a small upward revision in coming months as additional data are gathered.

[2] CoreLogic TrueStandings Servicing data on active mortgages through December 2018.

[3] CoreLogic defines a ‘cash-out’ refinance as a loan that has an amount that was at least $5,000 or 5 percent larger than the original loan amount of the prior loan.

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