The newest data from Fitch Ratings has revealed that housing market appreciation, along with the rapid increase in mortgage rates over the last year, have accelerated the “plunge” of mortgage origination volume.
According to Fitch, these trends have exacerbated industry overcapacity, “further pressuring nonbank mortgage lenders’ financial results and leading to operating losses, testing even the best-positioned lenders.”
They expect that most issuers should be able to withstand current market conditions and potentially gain market share through the use of scalable technology platforms, diversification, balance sheet strength, and access to liquid capital should afford them the flexibility to mitigate any operational losses in the current mortgage environment.
Black Knight has reported that home price appreciation of around 40% of the historical median due to the transition to remote work—which in itself caused a 15-percentage point rise in the national housing price growth numbers.
Median home prices, while still up 12.1% year-over-year, fell 0.98% sequentially in August, after falling 1.05% in July, the largest monthly decline since July 2009, according to Black Knight. Housing inventory is also rising due to lack of affordability and waning consumer confidence. A significant portion of the housing market is locked into historically low mortgage rates, with transaction volumes expected to remain low over the medium term.
The rise in the nominal interest rate throughout the year has pushed mortgage rates to nearly 7%, which has corresponded to a large drop in mortgage originations as volume has declined 69% from the January 2021 peak, according to the Mortgage Bankers Association.
The drop in volume and the rise in rates have also caused closures and layoffs recently, with more likely on the horizon as rates are expected to be upped again at the November meeting of the Federal Reserve’s Open Market Committee.
Click here for more of Fitch’s findings.