The US mortgage market faced a new “refinance boom” after mortgage rates fell by nearly 200 basis points between November 2018 and November 2020. federal Reserve The rate cut which was done to address the economic effects of the COVID-19 pandemic.
Thank you for reading this post, don't forget to subscribe!researchers in Federal Reserve Bank of New York Estimate the size of this boom in a new report. From the second quarter of 2020 to the fourth quarter of 2021, 14 million mortgages were refinanced, which is nearly one-third of the mortgage balances outstanding.
Data published on Monday showed that older mortgages (loans originated before 2010) accounted for less than 9% of total refinances during the Covid-19 refinance boom. This is in stark contrast to the roughly one-third of refinanced mortgages from 2015 and later.
Since it makes sense to refinance when the balance is high, as of the first quarter of 2020 less than 10% of mortgages with balances less than $100,000 had refinanced, while half with balances between $400,000 and $500,000 had refinanced. were hostages.
When broken down by investor type, 38% US Department of Veterans Affairs Outstanding mortgages refinanced through the end of 2021 as of the first quarter of 2020, compared to 25% fannie mae And Freddie Mac mortgage loan and 22% federal housing administration Mortgage.
According to researchers at the New York Fed, the effects of the ref boom will last for decades.
Nearly 64% referred borrowers to get a better rate, resulting in a $220 reduction in average payments. Ninety million borrowers refinanced their loans without equity withdrawals, totaling $24 billion in shortfalls annually.
In addition, five million borrowers removed $430 billion in home equity through cash-out refs. The average amount cashed out was $82,000, and the average monthly payment increased by $150.
“The mortgage refinancing boom may be over, but its effects will be seen for decades to come,” Andrew Howout, director of household and public policy research at the New York Fed, said in a statement.
“As a result of the significant equity drawdown, mortgage borrowers reduced their annual payments by tens of billions of dollars, providing additional funds to spend or make payments to other debt categories,” Hougout said.
According to the researchers, the 2020-2021 ref boom was different from the ref boom in 2003 and 2013 for three reasons: interest rates were historically low; Home equity was at an all-time high, thanks to the pandemic; And the rebound in rates was historically sharp.
In fact, when the market turned, 30-year mortgage rates increased by 400 basis points, from a historically low rate of 2.68% in December 2020 to 6.90% in October 2022. Such growth had not been seen since the early 1980s. According to Freddie Mac’s estimates.
And, the mortgage market is still recovering.
The New York Fed’s Center for Microeconomic Data showed in its quarterly report on household loans and credit that mortgage originations – measured as new mortgages appearing on consumer credit reports – fell to $324 billion in Q1 2023.
This is the lowest level since Q2 2014, which was an unusually low quarter due to the “taper tantrum”.
Meanwhile, the pace of equity withdrawals stalled when mortgage rates began to climb. The researchers said the volume of quarterly equity withdrawals in the first quarter of 2023 was near historic lows, mainly as a share of disposable personal income.
“Owners who want to move now will face higher borrowing costs and higher prices, with current house prices 36% higher than before the pandemic,” the researchers concluded. “Improved cash flows resulting from the recent refinancing boom will potentially provide significant support to future consumption.”
