California mortgage lending plunges record 63% – Daily News

“Crash, Correction or Chill” looks at economic and real estate trends that provide clues to the extent of the housing problems.

Buzz: Mortgage lending in California experienced a record slump this summer as rising interest rates made most loans unaffordable.

Source: My trusty spreadsheet analyzed third-quarter mortgage lending trends compiled by Attom. These 2000 statistics look at lending in 210 metro areas across the country – including 19 areas in California.

top line

Californians in 19 metro areas took out 177,566 mortgages from July through September.

That’s the second slowest three months of the century. It’s also a stunning plunge of 63% from the same period last year, making this the largest 12-month drop on record.

Yes, this home loan crater is deeper than anything we experienced during the bubble-bursting housing meltdown of the mid-2000s.

How did it happen?

The Federal Reserve hiked interest rates to combat rising inflation. Over the past 12 months, the average 30-year loan has increased from 3.1% to 6.9%, according to Freddie Mac.

Skyrocketing interest rates reduced a homeseeker’s potential “borrowing” power by 35% in a year, surpassing the 33% drop in 1980, another era of high inflation, when interest rates fell from 10.5% to 16.3% rose.

For example, this summer, home-buying mortgages are down 53% from a year earlier. And homeowners refinanced 82% fewer loans.

Remarkably, homeowners took out 74% more home equity loans. This tactic has become the preferred way to get money out of a home without losing the great interest rates on an older mortgage.

By the way, this is not a purely Californian trend. Fewer mortgage deals were cut in every major US city tracked by Attom over the past year.

The nation, minus California’s metros, had 1.8 million mortgages this summer — a 44% drop over 12 months, also the largest drop on record. There were 30% fewer purchase loans and 66% fewer refis, but 45% more home equity loans.

Crash, correction or chill?

Crash: If you take out mortgages for a living, this is a major disaster. No credits. No paychecks.

Mortgage broker Jeff Lazerson, a Southern California News Group contributor, recently wrote that he had laid off two-thirds of his staff: “Mortgage business has all but shut down. And yes, it’s a lot worse than the mortgage collapse I remember from the Great Recession.”

Correction: For the broader housing market, this is part of a return to normal after a boom fueled by the Fed’s easy-money policies in the early days of the pandemic. This year’s rise in interest rates should slow down the overall economy and residential construction.

Relax: By and large, this dramatically slowed lending is a relatively minor nuisance.

Losing home sales is an economic downside. But remember, thanks to 30-year fixed-rate mortgages, the Fed’s gift to any homeowner who has refinanced in recent years remains in place.

The extra money from shrunken mortgage payments is still being spent. It’s part of the overheated, inflationary economy. And improved household cash flow can provide a financial cushion against a significant downturn.

The unknown

Lenders have been very conservative about who gets mortgages this cycle. So it’s a sensible bet that the increase in home equity will be done prudently. (Fingers crossed!)

But if the rise in home equity loans is due to the financial strain on borrowers, that’s a worrying pattern for the broader economic picture.

details

As mortgage lending slows in some of California’s largest housing markets, ranked by the size of the year-long drop in lending over the summer…

San Jose: 8,114 mortgages issued in the third quarter, down 71% (the biggest drop among any US metropolitan area). That came from 60% fewer home loan deals completed, 89% fewer refinance deals, but 46% more home equity loans.

San Francisco: 22,048 mortgages, down 67% (#5 of 210) – 56% fewer purchase loans, 86% fewer refis, but 35% more equity loans.

Ventura County: 4,212 mortgages, down 65% (#8) – 54% fewer purchase loans, 86% fewer refis, but 85% more equity loans.

San Diego: 16,835 mortgages, down 65% (#9) – 56% fewer purchase loans, 84% fewer refis, but 79% more equity loans.

Los Angeles-Orange County: 51,431 mortgages, down 64% (#12) – 55% fewer purchase loans, 83% fewer refis, but 82% more equity loans.

Sacramento: 15,422 mortgages, down 62% (#18) – 49% fewer purchase loans, 83% fewer refis, but 94% more equity loans.

Domestic Empire: 28,247 mortgages, down 60% (#22) – 49% fewer purchase loans, 78% fewer refis, but 127% more equity loans.

Jonathan Lansner is a business columnist for the Southern California News Group. He can be reached at [email protected]

Source