U.S. Mortgage Lending Volume Hits a 17-Year Low

The U.S. housing market is witnessing a 17-year low in the lending volume. The downturn was triggered by a percent point increase in the interest prices last year, which in turn was a result of Federal Reserve’s announcement of tapering its stimulus cash. The average interest rate for a 30-year fixed mortgage rose from 3.54% to 4.34% over the year.

The fall was further sustained by ever soaring home prices. Apart from the increase in interest rates and home prices, another factor for the plummet is the tightening of credit standards by lenders that caused the homebuyers to further pull away from lending.

If market experts are to be believed, this multi-billion plunge reflects a major shift from loan refinancing to all-cash purchases. There has been an upsurge in all-cash purchases made by investors, institutional landlords and private-equity firms.
Comparing the first quarter home sales figure of 2013 and 2014, it is revealed that refinancing fell from 69% to 34% while all-cash purchases shot up from 20% to 43% (residential sales).

The drop was predicted by housing market analysts but it became evident only after Wells Fargo and JPMorgan Chase, the leading lenders in the U.S, released their quarterly sales report. But it’s not just the mainstream lenders that were affected. The whole market has been riding the lows since the beginning of this year.

The total loan volume for the first quarter in 2014 turned out to be $226 billion, some multi billion dollars away from the average quarterly sales figure. As per Mortgage Bankers Association in Washington, this quarterly volume is equal to 1/3rd of the average quarterly volume of 2006. Housing market witnessed such a tumble 17 years ago, in the year 1997.

This twin upsurge in the interest rate and home prices is sure to keep borrowers at bay till the market turns otherwise. Let’s hope, it does so, soon!