This past third quarter, 3.25 million residential mortgages were originated in the U.S., according to Attom Data Solutions’ Residential Property Mortgage Origination Report. This number represents a 17% jump over the prior quarter and a whopping 45% year-over-year increase for the highest quarterly volume in 13 years.
In addition to the boost in loan originations, total dollar volume hit a new high as well. Home loans in third-quarter 2020 reached an estimated $974.1 billion, the highest quarterly level since 2005. This was up 20% from the previous quarter and up 52% from third-quarter 2019.
Although refinance activity has been strong throughout the COVID-19 pandemic due to low interest rates, purchase activity made a significant jump in Q3 2020. With rates dropping below 3% on 30-year fixed-rate loans, purchase originations grew more quickly than refinances for the first time in more than a year. Measured by dollar volume, purchase originations represented 34.5% of all loans in Q3 2020, up from 30.6% in the prior quarter. Meanwhile, refinances declined from 63.1% of all loans in Q2 2020 to 60.3% in the third quarter.
With roughly 1.05 million purchase mortgages originated in Q3 2020, the dollar volume for these loans rose to $336.3 billion, up 35% on a quarterly basis and up 36% annually. Although refinance activity accounted for a smaller share of the market at this time, it still represented the majority of originations and continued to show growth, albeit at a slower pace than purchases. The number of refinances issued rose 16% from Q2 to Q3 2020, while refi dollar volume jumped 15% to $587.6 billion.
As with many things related to real estate, location means everything, and different areas of the country reflect lending realities that may differ from national trends. Among metro areas with at least 1 million people, Baltimore and Pittsburgh had quarterly purchase-activity declines of 7% and 3.6%, respectively, while Boston and Hartford, Connecticut, saw sizable increases in purchase activity (75.3% and 52.6%, respectively).
Several metro areas boasted quarterly refi increases of at least 30%, easily topping the nationwide increase of 16%. These metro areas included Tucson, Arizona (up 38.4%); Virginia Beach, Virginia(up 37.8%); Richmond, Virginia (up 35%); Las Vegas (up 32%); and San Jose (up 31.8%). Other large metros bucked the overall trend in the opposite direction and had declines in refi activity, including Pittsburgh; Rochester, New York; Detroit; Grand Rapids, Michigan; and New Orleans.
The types of loans being originated shifted somewhat in Q3 2020. Mortgages guaranteed by the Federal Housing Administration accounted for 10.3% of all residential originations during these three months, up from a 9.4% share in Q2 2020 but well below the 13.2% share in Q3 2019. Loans backed by the U.S. Department of Veterans Affairs held steady at 8.7% of all residential-property loans, the same as Q2 2020, and down only 10 basis points year over year.
As home prices continue to increase, so do loan amounts and downpayments. This past third quarter, the median downpayment was $20,775, representing massive quarterly and yearly increases of 48.9% and 68.6%, respectively. This was the highest median downpayment since at least 2000. The median loan amount also reached a 20-year high in Q3 2020, jumping 10.3% from the prior quarter and 24.2% year over year to $275,500.
With these factors in mind, third-quarter 2020 was a positive one for the mortgage industry. The surge in origination activity may be attributable to historically low interest rates and some pent-up demand as the effects of the pandemic continued to be felt across the country.
Although the U.S. unemployment rate declined to 7.8% at the end of September 2020, it was still more than twice as high than it was at the start of the pandemic in March 2020. The apparent economic boom feels tenuous at best as the length and lasting effects of the health crisis continue to be unknown. ●