The WSJ reports,"mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery.
Lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance''.
The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve's initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.
The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter.
"A strong housing rebound is an important component of most forecasts that suggest that GDP growth will be stronger than the economy's 'potential' rate over the next two years," Eric Rosengren, president of the Boston Fed, said in a speech last week.
Softness in the housing market, if it deepens and undermines the broader economic outlook, could complicate the Fed's efforts to dial back easy-money policies designed to support the recovery. Applications for purchase mortgages last week ran nearly 18% below the level of a year ago, even as the average loan amount on new applications hit a record of $280,500, according to the Mortgage Bankers Association.
The numbers raise questions over whether wage and job growth is strong enough for American consumers to shift the housing rebound that began two years ago into second gear. Some investors, who have played an outsize role whittling down an oversupply of homes, have begun to retreat from certain markets where prices have risen sharply. The degree to which traditional buyers, especially at the entry level, are able to pick up the baton could determine the shape of the recovery going forward.
