Home News California mortgage-making takes record 63% dive – Orange County Register

California mortgage-making takes record 63% dive – Orange County Register

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“Crash, Correction, or Chill” points to economic and real estate trends, suggesting the depth of the housing problem.

Buzz: Mortgages in California saw a record drop this summer as soaring interest rates made most loans unaffordable.

sauce: My Trusted Spreadsheet Analyzed Q3 mortgage trends compiled by AttomThese statistics go back to 2000 and look at lending in 210 metropolitan areas nationwide, including 19 California areas.

top line

Between July and September, 177,566 mortgages were placed in California’s 19 metropolitan areas.

This is the second slowest three months in the century. He’s also plummeted 63% from the same period last year, the biggest 12-month drop ever.

Yes, this mortgage crater is deeper than anything we witnessed during the bubble burst housing meltdown of the mid-2000s.

How did that happen?

The Federal Reserve has hiked interest rates to combat surging inflation. According to Freddie Mac, in the past 12 months, the average interest rate on a 30-year loan has jumped from his 3.1% to 6.9%.

Soaring interest rates slashed the potential ‘borrowing’ power of home-hunting by 35% in one year, outpacing the 33% drop in 1980, another period of high inflation when interest rates rose from 10.5% to 16.3%. .

So this summer, mortgages to buy homes are down 53% from a year ago. And 82% fewer loans have been refinanced by homeowners.

Surprisingly, owners took out 74% more home equity loans. This tactic has become the preferred method of withdrawing cash from a home without losing the high interest rate on the old mortgage.

By the way, this is not just a California trend. All U.S. metros tracked by Attom saw a decline in mortgage transactions cut over the past year.

Excluding the California metropolitan area, the country had 1.8 million mortgages this summer. This is his 44% drop in 12 months, also the biggest drop on record. Purchase loans were down 30% and refinancings were down 66%, while home equity loans were up 45%.

Crash, fix or chill?

crash: If you’re taking out a mortgage for a living, this is a catastrophe. No loan. No salary.

Mortgage broker Jeff Larsson, contributor to the Southern California Newsgroup, said: He recently wrote that he laid off two-thirds of his staff.: “For mortgage lenders, business has pretty much come to a standstill. And yes, it’s far worse than the collapse in mortgage volumes in the Great Recession that I remember.”

Fix: For the broader housing market, this is part of the normalization from the boom driven by the Fed’s low interest rate policy early in the pandemic. Interest rate hikes this year are designed to slow down the overall economy and housing.

Chill: In the big picture, this dramatic slowdown in lending is a relatively minor annoyance.

Lost home sales are an economic negative. But remember, his Fed’s gift to owners who refinanced in recent years remains intact, thanks to a 30-year fixed-rate mortgage.

Extra cash from reduced mortgage payments is still being spent. It’s part of an overheated, inflation-ridden economy. Also, improved household cash flow could provide a financial cushion against a major recession.

the unknown

Lenders are very conservative about who gets a mortgage in this cycle. So it’s a reasonable bet that the surge in home equity loans is being cautious. (We wish you success!)

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

detail

We’ve ranked how mortgage originations are slowing in some of California’s biggest housing markets, ranked by the magnitude of the decline in lending in the year leading up to the summer…

San Jose: The 8,114 mortgages placed in the third quarter were down 71% (the biggest drop of all US metropolitan areas). This is due to 60% more purchase loans closed, 89% more refinancings and 46% more home loans closed.

San Francisco: 22,048 home loans, down 67% (#5 of 210) – Purchase loans down 56%, refinancing down 86%, equity loans up 35%.

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