Lending Market Shows Improvement, But Has Not Recovered

The third quarter of 2024 brought modest growth to the U.S. mortgage market, according to ATTOM's latest Mortgage Origination Report. A total of 1.67 million residential mortgages were issued during the quarter, representing a 1.9% increase from both the previous quarter and the same period in 2023. This marks the second consecutive quarter of growth—a pattern not observed since early 2021. Despite this improvement, overall mortgage activity remains significantly lower than the 2021 peak, reflecting ongoing challenges in the housing market.

The increase in mortgage originations was primarily driven by gains in refinancing and home-equity borrowing, as opposed to purchases. Refinancing activity rose by 6.9% compared to the second quarter, while home-equity lending increased by 2.3%. In contrast, purchase loans declined by 1.7%, influenced by a tight housing supply and elevated prices, even as mortgage rates for a 30-year fixed loan dipped close to 6% by the end of the quarter. These dynamics highlight the challenges homebuyers face, with borrowing costs improving but property availability and affordability continuing to hinder purchase activity.

Regionally, lending trends varied significantly. Areas such as Anchorage, Alaska, and San Diego, California, experienced notable increases in overall lending, while Boulder, Colorado, and St. Louis, Missouri, saw sharp declines. In total, lenders issued $550 billion in residential mortgages during the third quarter, up 2.9% from the second quarter and 6.6% year-over-year. However, this figure remains far below the $1.3 trillion peak seen in early 2021, underscoring the long-term impact of rising rates and constrained inventory.

Refinance activity, in particular, reached its highest level in two years, accounting for 35.3% of all originations. The decline in mortgage rates has encouraged many homeowners to refinance their existing loans, signaling a shift toward reducing costs rather than purchasing new properties. Similarly, home-equity lines of credit have seen steady growth, comprising 17.8% of all loans issued in the quarter. These trends reflect a broader reliance on existing home equity as an alternative to navigating the challenging purchase market.

Government-backed lending also played a role in the quarter's activity. Loans insured by the Federal Housing Administration (FHA) remained steady at 13.8% of all mortgages, while loans backed by the Department of Veterans Affairs (VA) rose to 5.9%. Both categories highlight the continued importance of government programs in supporting segments of the housing market.

Although the mortgage market showed signs of growth in the third quarter of 2024, it remains far from its previous highs. While declining mortgage rates have spurred some activity, the persistent challenges of high home prices and limited inventory continue to weigh on the market, particularly for prospective buyers. As the new year approaches, these mixed forces will likely shape the evolving dynamics of residential mortgage lending.