The recent increase in interest rates has had a serious impact on mortgage refinancing activity in the country over the last three years.
As we look into 2024, there is hope that the upcoming year will result in lower interest rates, an increase in refinancing activity, and an overall increase in mortgage lending.
The expected interest rate cuts have not concluded, but recent lending data shows a 11.4% increase in refinancing activity over the previous year.
But that benefit comes with many important restrictions.
National refinancing activity increased by 11.4% compared to the previous year but decreased by 1.9% compared to the fourth quarter of 2023.
Also, ATTOM said that a key factor that led to the notable year-over-year increase was a temporary rush in 2023, which impacts the year-over-year comparisons.
What’s the other major catch? Refinancing organizations have decreased by 82.1% from the peak in early 2021, when interest rates dropped below 3% and many homeowners ran to apply for loans at historically low rates.
There is increasing optimism that September may see a rate cut from the Federal Reserve. However, ATTOM CEO Rob Barber said there is also hope that the second-quarter data will show an increase in overall lending activity, taking from trends seen during last year’s peak homebuying season.
Barber warned that interest rates and limited supply in the housing market will likely limit any rise.
As previously mentioned, high interest rates are affecting the housing market in numerous ways, creating a lock-in effect that keeps many potential sellers from moving and limiting inventory, which is one reason for the shortage of affordable homes.
Furthermore, the decrease in refinancing activity led to a job loss in the banking industry.
Lenders refinanced 490,953 residential mortgages in the first quarter, an increase from 440,890 a year ago, though a decrease from over 500,000 in the fourth quarter of 2023.
In the first quarter, the national refinancing loan volume reached $149.6 billion, reflecting a 1.2% decrease from the previous quarter and only showing a 4.7% increase compared to the same period last year.
Residential lending continues to drop
Home equity lines of credit decreased by 13.9% year over year, even with recent data showing that American homeowners with a mortgage had an average equity gain of 9.6%, or $28,000 last year.
Refinancing activity increased in 82% of metro areas compared to the previous year.
Honolulu, Hawaii leads with a year-over-year decrease of -42.3%, followed by Fort Myers, Florida, at -34.5%. St. Louis, Missouri, saw a drop of -31.4%, while Jackson, Mississippi, and Albany, New York, reported decreases of -22.7%.
On the other hand, cities that experience major year-over-year growth include Wichita, Kansas (62.4%); Virginia Beach, Virginia (52.2%); Knoxville, Tennessee (48.1%); and El Paso, Texas (47.5%).
Inventory still has difficulties
As median home prices continue to increase in multiple markets, there will be a direct relationship to the markets lock-in effect due to the lack of affordability.
Real estate giant, Redfin, reports that median home prices have hit a new record high of $396,000 for the four weeks ending June 16th. Median monthly mortgage payments reached $2,781, just $60 below the previous record high.
Although residential listings have increased by almost 8% per year, they remain low during the summer.
“We believe that the small increase in inventory we have been seeing will continue in the coming months,” Matthew Walsh, a housing economist at Moody’s Analytics Inc., proclaimed during a recent interview with the Business Journals. “However, the breakdown of this lock-in effect will remain unknown.”
