Through all its ups and downs in recent years, the one thing that's been persistent in the housing market more or less since the recession hit is that mortgage originations have been absolutely dominated by refinances. This makes sense in many aspects, including the fact that lenders have simply made it far more difficult for the average person to get approval on a purchase application. But now, it seems as though there is starting to be a strong and consistent shift in the market toward purchases finally starting to pull even with refinances.
Among the other reasons refinances were so prevalent in the housing market during the past several years is that mortgage rates have been at or near record lows since about the middle of 2012, and that has provided millions of current homeowners with the ability to slash their home loan costs significantly. Prior to this, there were large chunks of the homeowning population that had mortgage rates as high as 6 percent or even 7 percent in some cases, and the ability to cut that nearly in half was attractive enough to fuel the overall market for years.
But a funny thing happened
There are, of course, a finite number of homeowners nationwide for whom a refinance would actually save them money, and who can simultaneously afford to pay for such a change. And now, after years of rates being in the 3 percent range, millions have gone through that process. That has obviously reduced the potential number of people who can refinance at this point significantly.
But where refinances used to make up as much as 70 percent or more of the mortgage market in any given week, that number is now slumping back down into the mid- and even low-50 percent range, meaning that there may soon come a time when purchase mortgages once again become the dominant form of home loan in the U.S., overall. And when that happens, the mortgage market could change dramatically.
What will this mean for consumers?
One of the big reasons that it has been so hard for a person looking to make a home purchase to get a mortgage application approved in the last few years is that, frankly, lenders didn't have much motivation to re-expand credit access. After all, as long as there was a steady stream of refinances coming in, given the relatively small risk they provided in comparison with purchase loans, the latter type of financing wasn't needed to keep financial institutions' mortgage business afloat.
But as the market shifts toward being more even, or even tipping in purchases' favor, lenders may be more open to boosting originations for this type of loan. That, in turn, could create more buying opportunities for consumers in the future, because more access to credit means more people will be able to get into the market and, potentially, drive it forward as affordability remains relatively high.
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