In fourth-quarter 2021, 3.27 million mortgages secured by residential property (one- to four-unit homes) were originated in the U.S., an 11% decline from the previous quarter and a 13% decrease compared to fourth-quarter 2020. This marked the third straight quarter of declining originations, while the year-over-year decrease was the largest since late 2018, according to Attom Data Solutions’ U.S. Residential Property Mortgage Origination Report.
In addition to a decline in overall origination activity, the dollar volume of originations also dropped. Lenders issued $1.06 trillion in mortgages in Q4 2021, a 9% drop from the previous quarter and a 7% drop from one year earlier, marking the largest such declines since early 2019.
On a quarterly basis, all three categories of conventional lending (purchase, refinance and home equity lines of credit) decreased. Purchase lending was the only category to record a year-over-year increase. Overall lending decreases can be attributed to a number of factors, but rising interest rates coupled with the high volume of refinances issued over the past few years has led to a significant reduction in refi volume. Purchases are faring slightly better, but tight supply of for-sale homes has driven up prices while keeping down the number of purchase loans closed.
According to Attom Data’s report, 1.81 million refinances were originated in Q4 2021, a decrease of 11% compared to the prior quarter. Year over year, refinances were down a whopping 23%, the largest annualized decline in three years. Similarly, refinance dollar volume was down 9% from Q3 2021 and down 18% from Q4 2020. As a portion of all loans originated, refinances also shrank, although they still comprise the majority of residential lending activities. In Q4 2021, refinances made up 55% of all newly originated mortgages, down from 56% in Q3 2021 and down from 62% in Q4 2020.
Although purchase lending declined between the third and fourth quarters of last year, this market was still up in comparison to Q4 2020. In fourth-quarter 2021, 1.22 million purchase mortgages were originated, an 11% decline from the previous quarter but a 3% increase from one year earlier. The $439 billion volume of purchase originations represented a 10% decline from the third quarter of last year but an annualized increase of 14%. As a share of all originations, purchase loans accounted for 37%, down from 38% in Q3 2021 but up from the meager 32% figure in Q4 2020.
The composition of purchase loans continues to shift as home prices keep climbing. The national median downpayment for homes purchased with financing was $26,000 in fourth-quarter 2021, down 1% from the $26,250 figure seen in third-quarter 2021. This represented a significant one-year increase, however, as the median downpayment rose by 18.8% compared to the $21,891 figure as of fourth-quarter 2020. The median loan amount for homes purchased with financing in Q4 2021 was $293,400, a quarterly increase of 1.3% and a substantial jump of 10.5% from one year earlier.
The smallest segment of the market, home equity lines of credit (HELOCs), saw about 230,700 originations in the final three months of 2021. This represented quarterly and yearly declines of 5.5% and 4.2%, respectively. The HELOC category had a volume of $45.6 billion in Q4 2021, down 3% from the previous quarter and 11% below that of Q4 2020.
These declining numbers are key factors to watch as mortgage lenders and originators assess the direction of the market in the coming months and years. Although overall lending levels are up compared to the numbers of the past decade, the slowdown in refinances seems to signal an obstacle for overall business as well, particularly as the lack of housing supply continues to keep the purchase market tight. Watching these numbers, along with the trajectory of interest rates, will provide a better picture of the housing market moving forward. ●
