Consumers back off new real estate loans; market still growing  

East Tennessee consumers backed off new real estate loans in the last quarter of 2021, and the Mortgage Bankers Association (MBA) says the industry has entered a purchase era. Refinance loans still accounted for better than half of all local loans during Q4, but their market share is decreasing while purchase loans are increasing.

Welcome to the current transitioning housing market and economy. It’s chocked full of chaos and volatility. Demand is still high, prices are increasing, but headwinds are getting stiffer. Still, the market is only showing signs of a slight slowdown.

New mortgage loans were down 10.8% from the previous quarter in the Knoxville Metropolitan Statistical Area (MSA); down 8% in Kingsport-Bristol; down 7% in the Chattanooga MSA; and down 6.3% in the Johnson City MSA. That lags the U.S. picture. The total number of mortgages issued was down for the third quarter in a row. It included conventional, purchase, refinance, and home equity loans, according to Attom Data Solutions.

Overall, lenders issued $1.06 trillion worth of mortgages in the fourth quarter. That was down quarterly by 9% and annually. Only purchase lending remained up from a year earlier.

The percent of purchase loans to total loans in the Tri-Cities has increased for three quarters in both Tri-Cities metro areas. Kingsport-Bristol had a slightly higher market share during the fourth quarter (51.7%) to 50.7% in Johnson City.

Refinancing began outpacing Tri-City home purchase loans in the second quarter of last year and as owners locked in the lowest mortgage rates in modern times. But that shine is beginning to tarnish with mortgage rates increases and the realization that more is on the horizon. The Russia-Ukraine war dampened the last two weekly averages. Still, the FED will reportedly look at a quarter-percent increase this month. Although the FED does not set mortgage rates, what they do with interest rates does affect mortgages. And there are reports that some influential sources want a more targeted approach to increase mortgage rates.

“The receding volume of business for the residential mortgage industry is now showing up across all major categories of loans and appears to be more than just a temporary slide. The ebbing wave of refinance loan that started in early 2021 has fully spread to home-purchase and home-equity lending,” said Todd Teta, chief product officer at Attom. “No doubt, total lending levels are still up over normal amounts over the past decade. And the drop-off in purchase loans seems to flow from a lack of housing supply rather than the housing market boom ending. But declining business for lenders remains a key point to watch in assessing the state of the market, especially with interest rates likely to climb this year.”

U.S. mortgage applications decreased 0.7% for the week ending Feb. 25, as mortgage rates reached 4.15%. Compared to the same week one year ago, applications dropped 41.7%.

The MBA’s seasonally adjusted refi index increased 0.5% from the previous week but fell 56.2% year-over-year. Meanwhile, the purchase index dropped 1.7% in one week and 8.6% in one year, according to a Housing Wire report.

The quarterly mortgage loan decline is beginning to show up in this year’s local sales. The February Northeast Tennessee Association of Realtors (NETAR)  reports sales were flat. That will likely continue into the last month of the first quarter with sales gaining a hold on continued growth.

Geopolitics, inflationary gas price increases, and home price increases are assembling some formattable headwinds for the prime house buying and selling spring and summer season. There’s a rush among some builders to get the current new home projects online as quickly as possible to meet the still high consumer demand. But there are also concerns that some new homes may get stuck in the construction stages.

Current forecasts are for inflation to average 5% this year with a 4% mortgage rate average.

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